Private Equity: Early Signs Look Promising

The private equity market got off to a roaring start in the first quarter of 2017, with new commitments up sharply compared to last year.

(Estimated reading time: 2 min 42 sec)

Here are some highlights from Callan’s Spring Private Markets Trends newsletter:


  • New private equity partnership commitments totaled $80.0 billion, with 310 new partnerships formed, according to Private Equity Analyst, a substantial boost from $53.1 billion and 177 in the first quarter of 2016.
  • Ten funds raised more than $1 billion, up from only four a year ago, according to Buyouts.

Given that new private equity partnership commitments jumped 51% from the first quarter of 2016, I would not be surprised if the figure again tops the $300 billion mark this year, potentially exceeding 2016’s total of $312.2 billion. And both buyout and venture capital (VC)-backed IPOs raised more money than in the previous quarter.


  • Buyout funds invested $35.0 billion in 379 companies, a nice bump compared to $28.3 billion and 322 in the prior quarter.
  • Buyout M&A exits fell steeply to just 117, the lowest exit count since the third quarter of 2013 and down 25% from the prior quarter’s 157. Announced values also dropped sharply: 30 deals totaling $14.4 billion, off 47% from $27.0 billion in the fourth quarter.
  • Three buyout-backed IPOs raised a total of $2.4 billion, compared to three in the prior quarter, raising $1.97 billion.

Venture Capital

  • New investments in VC companies totaled 1,808 rounds with $16.5 billion of announced value, according to the National Venture Capital Association (NVCA), compared to 1,898 and $14.3 billion in the fourth quarter.
  • Venture-backed M&A exits totaled 132 and disclosed value hit $10.4 billion, compared to 162 and $6.8 billion in the fourth quarter.
  • Seven VC-backed companies went public with a combined float of $4.0 billion, compared to seven and $684 million in the fourth quarter. The largest was photo and video messaging company Snap, which raised $3.4 billion.

Allocations to VC funds hit their lowest level since 2015. VC deployment is down from recent peaks exceeding $20 billion and around 2,600 rounds per quarter, although the investment rate is still quite elevated by historical standards. The NVCA predicts this moderate pace will continue in the near term.


  • The Thomson Reuters/Cambridge database’s fourth-quarter 2016 All Private Equity Index return was 2.19%, compared to the S&P 500 Index (3.82%) and the Russell 3000 Index (4.21%).

Private equity has typically outperformed public equities: 4.2 percentage points annually compared to the Russell 3000 Index over the 15-year period ended December 31, 2016. But the gap is -1.5 percentage points over the 5-year period ended December 31, 2016, because of the recent surge in public equities. I expect that as public equities inevitably stumble, private equity will again outperform.

Additional observations:

  • Buyout prices remained high and general partners focused on add-on investments, which comprised 67% of the quarter’s total deal count. Bain & Co. reported recent prices averaging 10.9x earnings before interest, taxes, depreciation, and amortization (EBITDA) compared with single-digit multiples as recently as 2015.
  • Although public equity markets are marching upward, the IPO window is open a mere crack compared to the span from the first quarter of 2012 to the third quarter of 2015, when buyout-backed IPOs averaged 12 per quarter.

Read the full newsletter for more information about the latest results from the private markets and additional analysis.