U.S. private equity overhang reaches $400 billion

 The cumulative amount of private equity fundraising overhang in the United States is $400 billion.

After record fundraising years during 2007 and 2008, the Alliance of Merger & Acquisition Advisors and PitchBook Data Inc. say the gap between funds raised and equity invested has widened to an all-time high.

The capital overhang climbed by more than $141 billion during 2008 as funds closed on record amounts of new capital and investment activity declined about 60 percent because of the global economic slowdown.

Click here to view the AM&AA and PitchBook Capital Overhang Report.

“This historic high of capital yet to be deployed by private equity is indicative of the unique market forces that are at work today,” said BiggsKofford CEO Chris Blees, who serves on the Board of Advisors for the AMAA. “Private equity investors are now balancing the pressures to invest this large overhang with the economic reality that fewer quality investments exist. Today, more than ever, private equity cannot rely on history to help them predict the future. At the same time, investment bankers need to be guiding their clients towards more rational multiple goals.”

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John Gabbert, founder of PitchBook, said the drop in private equity flow is not because of a lack of available capital.

“With $400 billion available for investment, there is currently enough dry powder to more than support the deal activity of 2004, 2005 and 2006 combined with the use of moderate leverage,” he said. “Private equity firms continue to raise additional capital as well, with 18 new funds raising $25 billion in the last 60 days alone. As economic conditions continue to stabilize and the credit markets start to reopen, the private equity industry is poised to get back to deal making.”