Key Takeaways
- • Global private equity posted solid 2016 results despite early-year market volatility and geopolitical disruption, with exit activity remaining strong and returns continuing to outperform public markets by a significant margin over both short and long-term horizons.
- • Fundraising activity surged in 2016 as limited partners recycled distributions into new capital commitments, demonstrating continued confidence in private equity as a high-performing asset class despite macroeconomic headwinds.
- • Global buyout activity declined year-over-year in 2016, driven by persistently elevated asset valuations, intensified competition from corporate buyers, and macroeconomic and political uncertainties across multiple regions.
- • Private equity remains a favored institutional investment vehicle for yield-seeking investors with longer investment horizons, as general partners demonstrated capability in deal execution and portfolio company value creation through successful exits.
Summary
Bain & Company's Global Private Equity Report 2017, published in February 2017, documents a resilient private equity industry that navigated significant headwinds in 2016 while maintaining investor appeal and delivering competitive returns. Despite a succession of disruptive macroeconomic and political events that created volatile markets during early 2016, the PE sector demonstrated underlying strength through both fundraising momentum and robust exit activity, though absolute deal volumes declined from the elevated levels of 2014-2015.
The report reveals a nuanced market dynamic in which exit velocity remained healthy even as deal-making proved more challenging. While 2016 exit totals retreated from prior-year peaks—reflecting the completion of transactions that had been held in abeyance since the 2008-2009 financial crisis—the market achieved what Bain characterizes as a "new normal" for exit activity. This moderation reflects the natural digestion of accumulated portfolio companies rather than deterioration in underlying market conditions. General partners continued to execute disciplined value creation strategies across portfolio companies, reinforcing their reputation as active value creators capable of generating superior returns during market uncertainty.
Fundraising activity provided a significant counterweight to dealmaking constraints. Limited partners maintained aggressive capital recycling, converting distributions received from maturing funds into new capital commitments. This sustained fundraising demonstrates that institutional investors—facing historically low yields across traditional fixed-income and equity markets—view private equity as an essential allocation to achieve target returns, despite longer investment horizons and illiquidity constraints. Returns continued to outperform public equities materially, strengthening investor conviction in the asset class.
Buyout volumes, however, declined notably in 2016 as market conditions turned less favorable for large-scale acquisitions. Persistently high asset valuations—partly driven by corporate strategic buyers competing aggressively for quality assets—combined with macroeconomic uncertainty and regional political risks to compress deal economics. This environment required GPs to exercise greater selectivity in deal screening and more intensive operational value creation to justify entry multiples and generate acceptable returns.
The report reveals a nuanced market dynamic in which exit velocity remained healthy even as deal-making proved more challenging. While 2016 exit totals retreated from prior-year peaks—reflecting the completion of transactions that had been held in abeyance since the 2008-2009 financial crisis—the market achieved what Bain characterizes as a "new normal" for exit activity. This moderation reflects the natural digestion of accumulated portfolio companies rather than deterioration in underlying market conditions. General partners continued to execute disciplined value creation strategies across portfolio companies, reinforcing their reputation as active value creators capable of generating superior returns during market uncertainty.
Fundraising activity provided a significant counterweight to dealmaking constraints. Limited partners maintained aggressive capital recycling, converting distributions received from maturing funds into new capital commitments. This sustained fundraising demonstrates that institutional investors—facing historically low yields across traditional fixed-income and equity markets—view private equity as an essential allocation to achieve target returns, despite longer investment horizons and illiquidity constraints. Returns continued to outperform public equities materially, strengthening investor conviction in the asset class.
Buyout volumes, however, declined notably in 2016 as market conditions turned less favorable for large-scale acquisitions. Persistently high asset valuations—partly driven by corporate strategic buyers competing aggressively for quality assets—combined with macroeconomic uncertainty and regional political risks to compress deal economics. This environment required GPs to exercise greater selectivity in deal screening and more intensive operational value creation to justify entry multiples and generate acceptable returns.
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