Dry Powder in Private Equity: A Struggle to Spend or a Welcome Resource?

Dry powder is currently a hot topic within the private equity industry because the levels of dry powder are at a record high since the financial crisis, with over $1T of committed capital available.

It is the term used for the amount of cash reserves or liquid assets used by an investor for investment purposes, but has not yet been deployed and there are a number of reasons why there is an excess. In part, there are surplus cash reserves as a result of the strength of fundraising – more cash risen, more cash reserves. However, this is a tale of two halves as private equity has not been spending as much in previous years – asset prices have been inflating and private equity firms are reluctant to pay a premium for these assets. In fact, there has been a year-on-year decrease in private equity funding from 2015 to 2017.