Why Private Equity Has $963 Billion in Dry Powder

Investors give private equity managers their capital with the expectation that they’ll make it grow. But today these managers are sitting on a record $963.3 billion of dry powder, as they call money that they’ve raised but have yet to invest. The size of that pile, and the fact that it keeps rising, is making everyone antsy. A little dry powder is great if managers are holding out for better deals. But a lot can make for overly itchy trigger fingers, or can start to make investors wonder if there are cheaper ways to do nothing with cash.

How much dry powder a firm has depends on both how much it’s raising and how much it’s investing. Right now, the first is up and the second is down. Investors are pouring money into private equity in search of yield, driving near-record fundraising levels and speeding up the pace of inflows. On the spending side, managers are having a harder time finding attractive deals since asset values are generally considered high. Buyout dealmaking perked up a bit in the second quarter but remained below last year’s pace.