PE firms have raised a lot of money recently for new vintages, and dry powder is running high waiting to buy at more reasonable prices. But there are two issues in the ever green fields of PE: (1) they’re stuck with the current holdings on past vintages funds, because the IPO window is closed, and a substantial amount of the money that goes into new vintages comes from existing funds. And (2), banks are also closing the lending window since they have issues of their own with solvency, deposits to fund loans and commercial real estate portfolios. Extending the life of existing funds typically lowers the IRR, and less leverage (or no leverage) has the same effect. Additionally, there’s too much money looking for leverage buyouts transactions, which creates competition and increase the purchase prices, which also adds to the lower returns narrative.
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