By Steve Gelsi
Private equity firms continue to face a problem most people wish they had — they have more money than they know what to do with.
The top 25 private equity firms are sitting on $509.8 billion in uninvested cash, according to data released Tuesday from S&P Global Market Intelligence and Preqin.
Those firms are holding 22.3% of the global dry powder total of $2.29 trillion in August, according to S&P. That is a significant increase from December, when the worldwide total was just under $2 trillion; in December 2019, the figure was $1.63 trillion.
Out of the top 25 cash holdings by PE firms, 15 of them are based in the U.S., led by $43.2 billion in cash held by Blackstone Group Inc.
; followed closely by KKR & Co. Inc.
with $42.8 billion in cash; and $33.3 billion by U.K. firm CVC Capital Partners (See chart).
Meanwhile banks also hold a bumper crop of cash, with the U.S. Federal Reserve balance sheet doubling to $8 trillion since the Covid-19 pandemic began.
Banks covered by Deutsche Bank analysts have added more than $1 trillion in cash during the same time period, according to an Aug. 23 note from the firm.
Banks have deployed $350 billion of this cash into securities in the first half of 2021 and $900 billion since the end of 2019, Deutsche Bank reported.
Bank of America Corp.
has been deploying excess liquidity more so than most peers and it plans to continue to do so, while peers such as JPMorgan Chase & Co.
opted to stay on the sidelines until rates start to rise again.
Deutsche Bank analyst Matt O’Connor said the banks best positioned to add securities are M&T Bank Corp.
and JPMorgan, while those with the least capacity appear to be U.S. Bancorp USB, Truist Financial Corp.
and Bank of America, he said.
Meanwhile, private equity firms have been piling up dry powder for deals as their investors continue to pour money into the asset class in search of yield in a flat interest rate environment.
This has led to more diversification by the big firms, which have pushed into many new business lines ranging from managing insurance assets to infrastructure and fresh private equity funds with various strategies and geographies.
Six of the private firms from the S&P—including Blackstone, KKR, Softbank Corp., Bain Capital Private Equity LP, TPG Capital LP and Apollo Global Management Inc.
—have invested 5% or more in at least one special purpose acquisition company (SPAC).
“With record capital to invest, private equity firms competing for desirable target companies can drive up valuations, which may dilute expected returns,” S&P analysts said. “Additional pressure to invest may come from LPs, who want to see their capital at work.”
For its part, Blackstone Group is currently seeking $6.4 billion for its second fund aimed at Asia, the largest of 11 funds it is currently raising.
In the second quarter, Blackstone bucked the trend, reducing its total dry powder pile, including cash, from $148.2 billion in the first quarter to $129.9 billion, the firm announced on July 22.
The firm has deployed more than $100 billion in the past 12 months.
“We remain focused on our high conviction thematic areas, such as sustainability, logistics, digital infrastructure, housing, and the post-Covid travel recovery,” Blackstone COO Jonathan Gray said on a call with analysts last month.