Private equity deal activity rose last year, while the environment for this asset class remains intensely competitive, a prominent firm in the space says. Other data shows investors are far more upbeat on private equity than hedge funds, in light of sharply contrasting recent results.

The private equity industry last year clocked up $282 billion in total deal value, a slightly higher level than in 2014 although the total number of transactions fell slightly, according to Bain & Co, the US firm.

Despite this broadly stable picture, private equity firms face “intense pressure from continued competition and ferocious deal-making”, underscoring the need for firms to differentiate their offerings, Bain & Co said. 

In 2015, limited partners enjoyed a fifth consecutive year when distributions outpaced capital calls, generating strong net positive cash flows, the report said. In Bain & Co's view, for general partners, sharpening their focus on deal sourcing, investment thesis articulation and post-close value addition have never been more important.

“It’s been a dramatic decade in private equity, but as we’ve seen time and again, the smart investors find ways to overcome market challenges, make money for their constituents and earn the right to make more money to fuel their continued growth,” said Suvir Varma, head of Bain’s Asia-Pacific private equity practice.

Last year, the $175 billion that GPs attracted for commitments in new buyout funds came in 11 per cent below the amount GPs raised in 2014. PE funds with top-quartile predecessors closed faster and raised more money than ever before – among buyout funds, a full 40 per cent closed in six months or less. Further, the percentage of funds that hit or exceeded their fundraising targets was higher in 2015 than at any time since the pre-crisis boom of 2007.  

By region, 2015 buyout activity grew in North America, largely reflecting stronger economic fundamentals in the US, but dipped in Asia and Europe. Reported buyout deal value totalled $282 billion globally - the strongest year since the global financial crisis – as dry powder increased to a near-record $460 billion. Asset valuations, already high as 2015 began, rose to 10.1 times EBITDA in the US.

The aggregate value of buyout-backed exits came in slightly below the record $456 billion posted in 2014. But with $422 billion in realisations and 1,166 deals reported at year-end, asset sales were just shy of their all-time peak. 

A separate study of the alternative asset class sector, including the private equity business, by research firm Preqin, shows that investors are mixed in their views of alternatives. Most of those surveyed (65 per cent) have a positive general perception of private equity and only 6 per cent have a negative view. With hedge funds, however, some 38 per cent are negative, while 32 per cent are positive. Such views have been caused by the sharply contrasting investment results of these sectors in recent years. 

“Private equity and real estate have returned record amounts of capital to investors in recent years, and accordingly 39 per cent of real estate investors and 30 per cent of private equity investors feel their expectations have been exceeded, while only 11 per cent and 6 per cent respectively feel their expectations have not been met. By contrast, natural resources and hedge funds have faced challenging performance conditions over the past year, and 62 per cent and 49 per cent of investors respectively in these asset classes feel that their performance expectations have not been met,” Preqin said.