Three new reports from alternative investment research firm Preqin show many alternative asset classes setting a record pace in 2017, including overall private equity, private debt and venture capital, while private equity-backed buyout deals remained steady in 2017 from the prior year.
Overall alternative investment funds raised a total of $754 billion in 1,228 closed funds last year, up 3.6% in capital terms from $728 billion raised by 1,860 funds in 2016, according to Preqin.
Currently, there are 3,484 alternative investment funds seeking to raise a combined $1.26 trillion.
Among the alternative investment asset classes, 921 private equity funds closed on a total of $453 billion in 2017, up 9.4% from $414 billion by 1,243 funds in 2016. The dollars are an all-time fundraising record for the private equity industry. The previous record, matched in 2016, was set in 2007 when 1,044 funds raised $414 billion.
Dry powder levels exceeded $1 trillion in 2017, up from $838 billion in 2016. In the report, Preqin says "this landmark is not necessarily positive for the industry: entry prices for assets remain very high, and with so much available capital competing for deals, this will only increase the challenge for fund managers looking to deploy capital in 2018."
In 2017, there were also 4,191 buyout deals announced, worth a total of $347 billion, steady from the previous year, when 4,271 deals had an aggregate value of $340 million. North America had the most activity, with 2,284 deals announced worth $175 billion, while Europe announced 1,473 deals worth $98 billion, Asia announced 195 deals worth $63 billion and the rest of the world announced 239 deals worth $12 billion.
Fifty-one percent of buyout deals were small ones of less than $100 million and made up 3% of the total deal value, while 11% of the deals were for more than $1 billion, accounting for 59% of deal value.
In venture capital, 11,144 deals were announced in 2017, for a record $182 billion. The prior record was set in 2015, which saw 13,019 deals worth $148 billion. The most active region, North America, saw 4,302 deals announced worth an aggregate $77 billion. Asia also saw significant activity, with $65 billion invested in Greater China and $10 billion in India. The number of deals, and prior year totals, were not provided.
In private debt, 2017 was also a record-setting year, according to Preqin, with 136 funds securing a total of $107 billion, up from 163 funds raising $97 billion in 2016. The prior record was set in 2015, when 170 funds closed on an aggregate $100 billion. The activity in 2017 was driven primarily by direct lending funds, with 61 funds securing $54 billion, well above the previous $38 billion record set in 2015.
Closed-end private real estate funds did not, however, reach the fundraising activity seen in the last several years, with 263 funds closing in 2017 raising a combined $109 billion. It is the lowest overall deal value since 2013.
Oliver Senchal, head of real estate products, said in the report the drop "could be signs of growing sentiment that the market is at risk of being overheated."
However, within real estate, debt funds had a record year, with 47 funds securing $28 billion, while opportunistic fundraising fell to $34 billion in 2017 from $49 billion in 2016.
In infrastructure, 69 closed-end unlisted funds reached a final close, raising an aggregate $65 billion. While it is slightly below the 2016 record of 81 funds raising $66 billion, Preqin expects the 2017 figures to increase by up to 10% as more data becomes available, making 2017 on track to be a record year.
Tom Carr, head of real assets products at Preqin, said in the report that despite the strong fundraising, "we are also seeing that the largest fund managers are succeeding at the expense of smaller fund managers, as capital becomes more concentrated at the top end of the market."
The average infrastructure fund size in 2017 reached a record high at $992 million, up from $951 million in 2016.
In natural resources, 85 unlisted funds reached a final close, raising an aggregate $70 billion, steady from the previous year's $71 billion raised by 119 funds, although again, Preqin expects those numbers to rise by up to 10%. North American funds raised a combined $47 billion with 47 funds, which, while the largest, was still down from $57 billion raised in 2016. Europe-focused funds, meanwhile, had a record year, with 21 funds raising an aggregate $16 billion, well above the region's previous record of $11 billion in 2015.