The global private equity industry had what could be a record level of cash reserves available for buyouts and other investments as of Dec. 15, when firms collectively held an estimated $1.96 trillion in dry powder, according to Preqin Pro.

That preliminary figure, if confirmed, would represent a 21% year-over-year increase from the $1.62 trillion in private equity and venture capital dry powder reported in December 2021.

Nearly one-quarter of the industry's estimated cash reserves was held by just 25 firms, according to S&P Global Market Intelligence data. Of those top 25 firms, 18 were based in the U.S. and seven in Europe.

Blackstone Inc.'s $43.92 billion hoard was the largest stash of private equity dry powder. The firm is in the market with Blackstone Capital Partners IX, the latest edition of its flagship buyout fund, and is targeting $30 billion. But fundraising is increasingly challenging, Blackstone President Jonathan Gray said on the firm's third-quarter earnings call.

Gray pointed to the denominator effect that left many public pensions and other institutional investors overweight in alternative assets after the value of their public market investments declined suddenly in early 2022.

"I would acknowledge, it's harder out there. Investors are more capital-constrained," Gray said.

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With nearly $34.3 billion in cash reserves, software- and technology-focused investor Thoma Bravo LP ranked second on the list of private equity firms with the highest levels of dry powder. Thoma Bravo on Dec. 7 announced the completion of over $32.4 billion in fundraising across three funds, including $24.3 billion for Thoma Bravo Fund XV LP, which the firm described as "the largest tech-focused buyout fund ever raised." It also closed Thoma Bravo Discover Fund IV at $6.2 billion and Thoma Bravo Explore Fund II at $1.8 billion.

Third on the list was private equity and venture capital firm Advent International Corp. with an estimated $32.5 billion in dry powder. The firm completed its largest-ever fundraise in May, when its flagship buyout fund Advent International GPE X LP hit its $25 billion hard cap.

The U.K.'s CVC Capital Partners Ltd. led European private equity firms with nearly $22.9 billion in dry powder, followed by French investment firm Ardian with an estimated $22.2 billion in dry powder.

Outlook

In a recent five-year outlook report for alternative assets, Preqin predicted the pace of fundraising would "slow considerably" in 2023 as inflation and other macroeconomic challenges blunt private equity performance. Facing an uncertain global economic outlook, some private equity investors are expected to shift capital into less risky asset classes, the report adds, such as real assets and private debt.

Institutional investors already constrained by the denominator effect also may be seeing a reduced flow of distributions from their private equity fund managers due to a slowdown in dealmaking, leaving them with less cash available for reinvestment into new funds.

Add in the impact of longer hold periods for portfolio companies, which their owners have been slower to exit amid an unsettled market, and dry powder could become a smaller part of private equity firm balance sheets.

Dry powder accounted for 28.3% of private equity assets under management in 2021 but is forecast to decline to 25.3% of AUM by 2027, according to Preqin.