Private equity is expected to stage a comeback in 2021 from its pandemic-induced hiatus, with industry insiders predicting a return of mergers and acquisitions as well as fundraising to pre-COVID-19 levels.
Capital raised worldwide dropped by 19% to $542 billion in the first three quarters of 2020, while the number of funds fell by 28% to 754, according to a PE Pulse report by Ernst & Young LLP's private equity unit. Meanwhile, exits declined by 17% to $281 billion as of Sept. 30 compared with the same period a year earlier, mainly caused by a falloff in mergers and acquisitions, the report shows.
But while private equity fundraising and exit activity might have been down, many investors are not leaving the asset class and are waiting in the wings. At the same time, some private equity areas continue to suffer, but there will be sectors that are expected to thrive as a result of the pandemic.
PitchBook expects U.S. fundraising to bring in about $330 billion in 2021, surpassing the all- time high of $316.9 billion in 2019, according to its private equity outlook report. However, the high hopes could be dashed if vaccines are not widely administered and herd immunity not attained around the world in coming months.
Investors, particularly university endowments and health-care systems, "may pause new allocations to conserve cash," the report said. "Further economic carnage could drive investors away from risky assets, which would hamper new fundraising efforts."
Jason Thomas, Washington-based managing director and head of global research at The Carlyle Group Inc., said: "There's quite a bit of optimism around 2021; part of that is that it is not 2020."
Carlyle had $230 billion of assets under management as of Sept. 30.