24 April 2024

Private Equity Snapshot: Dry Powder Finally Declines (But Not by Much)

Author:

Justin Pollack

Managing Director, Private Funds Group

Private Equity Snapshot: Dry Powder Finally Declines (But Not by Much)

For the past 10 years, private equity firms have aggressively raised new capital, faster than they invested funds already under management. This push led to a continuous rise in uncalled commitments, or “dry powder,” that may be deployed by general partners at any time. The need for capital-at-the-ready reflects the opportunistic nature of many private equity strategies, but it also represents an uncertain liability for institutional investors, who must deliver cash quickly after receiving notice of a pending investment.

For the first time since 2014, this trend has broken. According to data collected by Preqin, April 2024 marks the first time since December 2014 that dry powder declined across the private equity industry. Granted, you may need to squint to notice the difference because the current mark is $3.911 trillion, which is only $400 million less than the level at the end of 2023. Yet, after growing at a compound annual growth rate exceeding 10% for a decade, any decline is a signal that financial sponsors are finally identifying new opportunities more rapidly than they are raising new capital.

This rebalancing may eliminate the overhang that leads investors to question whether there is too much money chasing too few deals.

April 2024 Marked the First Dip in Private Equity Dry Powder in a Decade

Unfunded capital commitments for private equity funds: December 2014-April 2024

Source: Dry Powder, Preqin database as of 15 April 2024.

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