It is uncontroversial to suggest that we are living in the golden age of private equity. Names like BlackRock, KKR, and Apollo are now as well known as their blue chip investing banking counterparts, and in some areas, find themselves in direct competition with each other.
Although DealRoom supports transaction management of both in tandem, the focus of this article is private equity – specifically, the 11 biggest players in the industry.
The investment targets can be public or private, but if public, will be taken private by the private equity company overseeing the investment.
How does Private Equity Work?
The Process
The process for private equity funds typically works along the following lines:
1. The Capital Raise
The period in which the private equity team seek to convince investors to invest their capital in their fund or (sometimes) their company.
2. Deal Sourcing
The period in which the private equity company looks for suitable opportunities that fit its investment thesis.
3. Post-acquisition Operational Improvement
The period in which the acquired company is restructured by the private equity team to generate more value.
4. Liquidation
The period in which the acquired company is either sold or brought to an IPO, enabling the private equity company and its investors to liquidate their investments.
The end goal of this process it to generate a higher multiple of earnings (i.e. value addition) than the company or asset was acquired for.
Characteristics of Firms that Private Equity Invests In
If there is a single theme that unifies all private equity investments, it is that the companies or assets being invested in are undervalued in some way.
Either because their current owners have not spotted the potential of the business, have mismanaged it, or have not been able to access the capital to bring the company to scale, the private equity company seeks to add value that will ultimately generate investor returns.
Beyond this, private equity companies also pay attention to issues such as:
- Industry and market dynamics
- Cash generation potential of business
- Competitive positioning
- Technology/capital requirements (insert link on capital investments)
- Potential to disrupt an industry
What are the most common PE strategies?
A previous DealRoom article discussed the six most common strategies used in private equity. These are:
- Venture capital
- Growth capital
- Real estate
- Mezzanine financing
- Leveraged buyout (LBO)
- Fund of Funds (FoF)
How does Private Equity Differ from Venture Capital?
For detail on this question, check our deep dive into the differences between private equity and venture capital.
Notwithstanding, the main differences can be summarized as follows:
Given all this, you may be wondering who the biggest players in this $7 trillion market are. Wonder no more.
The 11 largest private equity firms can be found below:
1. BlackRock – AUM: $7.5 trillion
2022 was a bad year for BlackRock. The undisputed leader of global private equity has already lost around 25% of its AUM over the course of the year, as investors began to criticize its impact investment strategy.
What’s remarkable is that even after such a dreadful year, the private equity fund behemoth still starts 2023 with a massive $7.5 trillion under management. Expect a revised ESG strategy at some stage in 2023.
2. Blackstone – AUM: $951 billion
Like its competitor BlackRock, Blackstone saw a series of investor withdrawals at the end of 2022, which lowered its end-of-year AUM. More importantly, the withdrawal may force the company’s hand on a long-awaited fund aimed at HNWIs, who have been pouring out of its real estate and credit funds.
Blackstone is one of several firms on this list which may rethink its strategy in 2023 as the market continues to evolve.
3. Apollo Global Management – AUM: $523 billion
Apollo Global Management’s focus on credit seems to put it in a good standing for 2023. Its CEO Marc Rowan recently said that the company finished the second half of 2022 by capitalizing on mis-priced risk – a trend that should continue into the coming year.
The firm’s latest strategy seems a solid one: expanding credit to take advantage of rising interest rates, geopolitical upheaval, and a growing liquidity crunch.
4. KKR – AUM: $471 billion
KKR is thought to be one of the chief beneficiaries of BlackRock’s short-term decline. Over a 12-month period, it raised a massive $126 billion in funds – over a third of the company’s AUM at the beginning of the period.
Assuming it can keep this rate up in 2023 – or at least maintain something like it – KKR will soon find its way past Apollo Global Management into the global top 3 of private equity companies.
5. The Carlyle Group – AUM: $369 billion
Remarkably, 2022 was the year in which the Carlyle Group’s private debt business overtook its private equity business for the first time in 35 years. In another interesting development, it also launched a clean energy developer, as it plans to build solar and other renewable assets itself, although failed to mention how much it intends to invest. 2023 promises to be an interesting year for the Carlyle Group.
6. CVC Capital Partners – AUM: $146 billion
CVC Capital Partners – the largest European private equity company by AUM – had planned to list on the Paris Stock Exchange in 2022, but subsequently pulled plans for the listing saying that it now had ‘no plans’ to list.
Assuming interest rates in Europe continue to rise on the same trajectory as those in the US, plans to list in the first half of 2023 may also have to be shelved
7. TPG – AUM: $135 billion
Unlike CVC Capital Partners, TPG went ahead with its plans for an IPO in 2022, listing on the technology-heavy Nasdaq index. This was an interesting choice, as most of its competitors had listed on the NYSE about a decade before.
The $10 billion listing was deemed a success, but the real test will be how the market will react to the company’s newly-announced focus on debt and infrastructure.
8. Thoma Bravo – AUM: $114 billion
Technology-focused Thoma Bravo may see gathering clouds over the tech industry as an opportunity to acquire some underpriced assets in 2023. It already tried to usurp Elon Musk’s bid for Twitter in 2022 (and he may end up regretting that they didn’t).
As 2022 drew to a close, Thoma Bravo announced it had raised $32.4 billion for new acquisitions to splurge on technology firms in 2023.
9. EQT – AUM: $100 billion
EQT may be one of the fastest-rising private equity companies in the world. Based in Sweden, it was the third biggest raiser of funds in the world after KKR and Blackstone in 2022, where it raised $57 billion – over half of its current total AUM.
At the end of the year, it announced that it had a record number of Japanese technology deals in the pipeline. Of the players on this list, EQT may be the one to watch in 2023.
10. Insight Partners – AUM: $98 billion
New York-based Insight Partners has taken a contrary position to many of the private equity companies on this list, advising investors: ‘avoid debt in 2023.’ Perhaps feeling debt is now an overcrowded field, Insight Partners instead continues to focus on the Europe-focused private equity strategy that has held it in such good stead.
With Europe facing into a big recession, Insight Partners LPs will be holding onto their hats in 2023.
Conclusion
Looking at private equity companies and the investment strategies they outline for markets as a year begins is often a good way of telling which way the wind will be blowing.
DealRoom has been a catalyst in many large deals for private equity companies over the years, and has been privileged to gain some valuable insights into private equity thinking in the process. Talk to us today about how we can drive your next private equity engagement.
