Global private equity dry powder soared to a record $2.49 trillion around the middle of 2023 as sluggish dealmaking limited opportunities for the deployment of uncommitted capital into buyouts and other investments.

A challenging fundraising environment did not halt private equity funds' accumulation of investor capital. The global dry powder total as of early July represented a greater than 11% increase over the December 2022 total of $2.24 trillion, according to S&P Global Market Intelligence and Preqin data.

The buildup of dry powder is happening at a time when private equity investment opportunities appear scarce, with private equity entries falling 53.5% year over year to $98.48 billion globally in the second quarter.

The uncertain global economic outlook and rising transaction costs linked to high interest rates and a greater level of regulatory scrutiny for private equity deals, particularly in the US, are among the impediments to dealmaking, said Andrea Guerzoni, EY global vice chair for strategy and transactions.

"It's always possible to do the deal, but it's more complicated and it's becoming more complicated," Guerzoni said.

Top 25 dry powder holders

Just 25 top private equity firms held 19.5% of the midyear dry powder total. Nineteen of those firms were headquartered in the US, including nine of the top 10 firms with the most dry powder as of July 3.

KKR & Co. Inc., one of the four largest publicly traded alternative asset managers by assets under management, led all other firms with $41.8 billion in uncommitted capital available to its private equity strategies, Market Intelligence and Preqin data shows. That was despite KKR being among the most active investors on the top 25 list, with 51 investments announced or completed in the past 12 months, the second-highest total among the 25 firms.

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At a conference in June, KKR co-CEO Joseph Bae predicted a "pickup in [investment] activity" in the second half of the year, but he acknowledged that buyers and sellers still have some distance to close on valuations.

"Owners of assets are looking back and saying, 'I could have gotten this [higher] price two years ago from my business.' Buyers of assets are saying, 'Interest rates are higher, there's more volatility, we need to pay a lower price,'" Bae said.

Outlook

A Bain & Co. Inc. midyear private equity report citing Preqin data noted that roughly three-quarters of the dry powder reserved for private equity buyout strategies was raised within the past three years. "That implies fund managers still have time to put money to work and aren't feeling undue pressure to do so," the report suggests.

Guerzoni expressed doubt about a significant uptick in capital deployment by private equity funds before the end of the year but said both fund managers and investors felt an imperative "to put money to work" even under less-than-ideal circumstances.

"More and more operators are getting more accustomed to the fact that they need to operate under the circumstances. They need to become more proactive. They need really to look into value creation with the burden of higher interest rates," Guerzoni said.