2020 was one of the years where private equity experienced momentum growth, and the situation is expected to extend to 2021. Private equity firm’s projects will increase volume up to approximately 21.9 percent for the first five months of 2021. About 2300 deals are expected to get completed during the same period next year signaling the growth in the industry.
Private Equity firms benefit from a tailwind in the market that has not been experienced in decades where interest rates in the market are on their record low, and there is a lot of fundraising that is taking place in the industry. The United States has recorded an all-time high Private Equity dry powder standing at approximately $150.1 billion. Another factor that fuels the scenario is additional funds getting channeled into the industry by some of the industry’s professional private equity who run some of the industry-established funds. Their initiative has added extra capital into the market.
Like any other industry that continues to evolve, the Private Equity market is no different as there is competition between traditional private Equity deals and emerging private equity firms that are run differently from what we are used to. The competition experience between these two models of operation is usually putting much pressure on the returns. Private equity firms are coming up with more diversified alternative asset management rules that can hold a variety of assets. A perfect period where the United States market experienced net new money flows was around 2015 to 2019, where alternative investors drove between 5 percent to 15 percent of the net new money in the market. During the same period, the traditional private equity firms experienced negative net flows. Targets and hunting for new money in the private equity firms are gaining momentum, and it has become one of the core businesses, particularly for the insurance industry. Introduction of competitive products such as annuities and long-term insurance care are some of the products that aim at bringing onboard net new money into the firms.