Private equity's mountain of "dry powder" rose to record highs in 2020

By the numbers: Every data provider calculates dry powder a bit differently, particularly since many PE deal sizes aren't disclosed and others don't break out equity vs. debt. But, within these different matrixes, the constant is all-time records. For example:

• EY reports that global buyout dry powder rose by 9% in 2020 to $865 billion, nearly half of which sits inside of mega-funds. Its figure has more than doubled over the past decade.
• Preqin reports that the global PE/VC dry powder is at a record level of nearly $2 trillion, of which 25% is in Asia-Pacific and another 19% is in Europe.

Between the lines: The term "dry powder" is derived from musket days, when loose gunpowder had to be properly stored, lest it get damp and lose its efficacy.

• It loses something in translation, particularly as more and more capital is committed but not disbursed. Fund managers can become tempted to lose discipline, thus reducing the efficacy of their powder, even if it was technically stored in a dry place.

The bottom line: More dry powder almost always results in more deals at higher prices, whether or not justified by the underlying fundamentals or overlying macro conditions.