Filthy Rich

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What's going on?

Private equity (PE) firms have been breaking dealmaking and fundraising records this year, and suddenly they have more money than they know what to do with.

What does this mean?

Private equity firms use a mix of investor money and debt to buy out a target company, in hopes of improving day-to-day operations and selling it on for a profit a few years later. And that business model has never looked more appealing: record-low interest rates have made it super cheap for them to raise the funds they need, while sky-high stock prices have put them on the scent of market-beating returns. That might be why the PE industry has accounted for a record 30% of all deals made this year globally (tweet this). And the rush isn’t slowing down anytime soon either: the sector’s built up a record $3.3 trillion of unspent cash in the first half of the year, meaning it still has plenty in the tank for even more acquisitions.

Why should I care?

The bigger picture: Yep, regulation again.
PE’s rapid growth does come with a downside: it’s been attracting more and more attention from global regulators. China announced last month that it would be cracking down on the way private equity funds raise money from retail investors, while the US is thinking about limiting how much debt they can use for deals and ending tax breaks for fund managers. All this intervention could knock the amount PE firms are able to fundraise and, by extension, the number of deals they’re able to strike.

For you personally: Don’t get left out.
You probably aren’t able to invest directly in PE funds unless you happen to have a family fortune after spending a night in a spooky mansion, but you can get in on the action: there’s an exchange-traded fund that tracks the performance of nearly 70 private equity firms around the world – and it’s up 37% this year alone.

Originally posted as part of the Finimize daily email.

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