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Four trends emerging in private equity

With competition across the private equity landscape at near record-highs, UMB Fund Services partnered with Pitchbook to produce a new report that explores how the increasingly competitive, evolving private equity landscape is encouraging innovation in both fund strategies and structures.

Our new report finds that alternative investments, and private equity in particular, have rarely been more popular. Capital is flowing to funds’ coffers at such an increasing pace that private equity dry powder, or cash reserves, is approaching $700 billion, according to Pitchbook‡ data.

Key trends identified in the report include:

Buyout volume peaked in 2018

There were 4,264 private equity deals in the U.S. in 2018, which is a 12% increase from 2017. What’s more, overall deal value of buyouts increased by more than 17% over that span, reaching $672.7 billion. While 2019 shows a slowdown in volume, it still has a record size buyout for the decade, at $202.5 million, according to Pitchbook.

Competition in the private equity space is stronger than ever

Along with an uptick in private equity deal value and volume, competition is on the rise. According to Pitchbook, there have been more than 2,000 active firms in the U.S. for several years, signaling a dynamic – if not saturated – market. Per our report, even growth investment has soared to new records in a sign of strategy shifts to keep deploying capital.

And when analyzing Pitchbook’s data through Q3, 2019 was on pace for a decade-low number of deals that involved only recently established firms.

Private equity fund innovations: managers must innovate to thrive

With competition at an all-time high, fund managers are innovating wherever possible, whether in strategy or structure, to minimize costs and differentiate. Private equity is institutionalizing, and third-party administrators are emerging.

From the portfolio management side, operating specialists are in high demand. Traditional private equity sectors are hotbeds of competition, while newer areas, such as software, are heating up. In turn, the report notes that dedicated operating partners with specific industry experience are needed.

Outsourcing in private equity is increasing, slowly but surely

To stave off competitors, firms are outsourcing administration and the aspects of their operation that can be automated. However, firms are slowly embracing these efficiencies due to the robustness and sophistication behind such moves, as well as the inherent challenges and complexities of outsourcing.

This trend signals increasing institutionalization across the private equity landscape. The gradual adoption of new technologies and a trend toward outsourcing are signals of the industry’s evolution.

Download our new report, Innovation Across PE Funds, to learn more.graphic line break

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When you click links marked with the “‡” symbol, you will leave UMB’s Web site and go to Web sites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other Web sites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.