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icon_calendar.png April 19, 2022

US Private Equity Industry Outlook for 2022

The post pandemic private equity industry in the USA is looking more robust than ever. Financial data analysts indicate that 2021 was a record year for PE fundraising, low interest rates and plenty of ‘dry powder’. The smart money predicts that 2022 is on track to be a bumper year.


Abingdon’s analysts predict the most serious threat to the private equity market in the US, will be regulatory as opposed to economic due to antitrust and disclosure obligations. However, private equity firms are renowned for innovation and are expected to continue to create deals of increasing size and complexity. For example, Pitchbook analysts have forecast that assets under management of alternative managers will exceed $3 trillion, 400 plus middle-market software deals will take place and $5 billion plus funds will raise $250 billion collectively.


Continued Growth in ESG investments
The recent COP26 conference served as a sage reminder of the issues surrounding climate change. Increasingly, investors are making decisions based on risk management and the constantly increasing regulation relating to sustainability. This is supported by research undertaken by US Lawyers Dechert, which revealed that 60% of US PE companies predict that Limited Partners will start to attach higher importance to ESG issues and reporting in 2022.


As sustainable investment gains greater purchase in the PE market, ESG is recognised by investors and asset managers as both a tool for creating value and mitigating risk. A growing number of US private equity companies have already or are considering launching impact funds dedicated to sustainable investments and increasing the allocated capital available for ESG investment. More specifically to investment in areas that support a low-carbon economy.


ESG issues are expected to remain in sharp focus throughout 2022, and the creation of the International Sustainability Standards Board and imminent release of global ESG disclosure guidelines, will provide a helpful template for global reporting standards.


Disruptive Technology

Over the last five years there has been a substantial increase in the proportion of technology-based transactions amongst private equity firms. In 2021, the volume of tech deals in US had reached $400 billion, as compared to $196 billion in 2020.  Activity has been driven by technological advances and also by the adoption of online technology during the pandemic.


Organisations looking for cost savings are turning their attention to disruptive technology. Technologies such as artificial intelligence, distributed ledger technology and robotic process automation, are essential tools for analysing large data sets, reporting, expediting deals and cutting costs. It is suggested that in 2022 we will see private equity firms choosing new technical, forgoing manual for automation. 


An example of the scale of the activity forecast for 2022 is the recently announced $16.5 billion deal for Vista Equity Partners and Elliott Investment Management’s deal to take Citrix (cloud computing) private.


Record fundraising

Private Equity International reports that 2021 is a record-breaking year with fundraising totalling $535.3 billion accumulated throughout by Q3. This is the highest level since 2008. As a result, PE assets are an all-time high, running over $5 trillion. 2022 is predicted to see equally robust fundraising levels.


Dry powder

As reported by Broadbridge, even though PE fundraising has been extraordinary, there is currently an abundance of ‘dry powder’ which has yet to be allocated to deals.  Additional data provided by Prequin reports that $1.6 trillion of dry powder in private equity firms’ coffers, which should be set to work. It is suggested that this could result in several leverage buyouts throughout 2022.


In conclusion, although 2022 is on course for substantial growth, it is important to note that the recent invasion of Ukraine by Russia has also brought a set of unique challenges which could affect global growth and performance. The situation could bring about a rise in interest rates, inflation, interruption to supply chains and labour issues.

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