Most Private Equity Managers Think Returns Will Fall

Climbing valuations have made typically high private-equity returns unlikely, according to a PitchBook survey.


Even private equity managers admit that their industry is poised to provide lower returns.

As more money has flowed into private equity funds, competition for assets has intensified, pushing up acquisition prices to the point where “typical” returns may no longer be possible, according to a report this week from PitchBook, a provider of private-markets data. The majority of private equity managers surveyed by PitchBook said this is because deal multiples, which measure a company’s valuation, are too high.

The median acquisition multiple spiked to 10 times a measure of earnings in the third quarter, well over the five-year median of 7.6 times, according to Pitchbook. Many deals were valued at 20 times earnings or higher, the firm found.

Valuations will likely remain high because firms have easy access to credit for leveraged buyouts amid increasing competition for deals, according to the report. Underscoring how competitive the landscape has become, PitchBook said almost a third of the deals that fell through in the last two quarters was because the seller received another offer.

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Still, 46 percent of managers surveyed by PitchBook believed they could achieve normal returns.


Investors in private equity funds have already grown more cautious, with just 58 percent polled by Preqin earlier this year saying they have a positive view of the industry. Eighty-six percent of those surveyed pointed to valuations as a concern.

In February, Preqin said a record 1,865 funds were seeking $624 billion in capital, putting pressure on managers to find good deals.