New information from Preqin, a London-based provider of alternative assets data, indicates that private capital funds are currently holding onto historical amounts of money, waiting for the right investments to come along.
Accelerated growth in private capital funds shouldn’t be a surprise to many. Following the end of the 2008 financial crisis, the industry began to experience new growth and has now surpassed all previous records. As traditional asset classes like public stock and bond markets have started to appear increasingly overvalued, investors have shifted their focus toward private capital.
Unlike traditional assets, such as stocks and bonds, private securities are traded much less often, resulting in a scarcity of price information. Generally, they’re also longer term than other investments. Why then might this seem appealing to investors?
With rumors floating around that we’re headed for yet another financial crisis after unbridled growth in investment markets, investors are starting to see the appeal of reducing their liquidity and putting their money into private capital funds. This is because private capital funds tend to perform well— even in the midst of economic slumps.
This great video from The Economist shows how you can prepare for the next recession.
Unfortunately, there are some significant downsides to such rapid growth in private capital. An abundance of money in the sector can eventually begin to inflate prices, causing ROIs to be reduced in terms of real dollars.
Investors may have also forgotten the disadvantages of illiquidity, as we move further away from the past financial crisis (and closer to a new one). However, an investment fund isn’t created just to hold money; that money is there to be used for investments.
According to data from Preqin, 327 private capital funds raised a total of $214 billion in the third quarter of this year, with a quarterly average of $192 billion. This record-breaking fundraising makes 2018 the biggest year for private capital funds, second only to last year.
In addition to an increase in the total amount of money raised, the number and size of private equity firms have increased substantially since last year. Although it may be difficult to top records from 2017, there are multi-billion dollar funds on the market still seeking investor capital, such as Global Infrastructure Partners IV whose fundraising target amounts to $20 billion.
If this goal were reached, it would make the fund the largest infrastructure fund in history.
Like we saw back in 2008, this year has brought us 11 of the 100 largest private capital funds ever raised. With the growth of these funds, we’re witnessing a concentration of capital like never before. Funds of over $1 billion accounted for 63% of fundraising this year and we’re likely to see this trend continue as GIP and SoftBank Vision are scheduled to close in Q4 of 2018.
With private capital funds larger and more numerous than ever, the current climate is like a gold rush for startups. We’re convinced that 2018 and 2019 are set to be record-breaking years for private capital and that the chances of finding investment are greater than ever.
Startups and small business also represent a promising investment that’s more insulated from a financial crisis than traditional assets. As fears grow regarding a possible burst of the market bubble, your business will become even more appealing to investors.
At Apogee Accelerator Group, our mission is to prepare your business for Venture Capital and to train you to win the deal. We’ll also pair you up with investors that are right for you, refine your executive summary, and help you build a plan for future success.
Learn more about our services and receive a free consultation by visiting our page.
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