Triago: Fuse burns on dry powder keg

An estimated $14.5bn in capital commitments is expected to reach the end of its investment period in 2013 without being deployed.

The clock is ticking for private equity fund managers with capital to invest.

Roughly 10 percent of total dry powder – an estimated $14.5 billion – is expected to reach the end of its investment period in 2013 without being invested, according to placement agent and secondaries adviser Triago.

While approximately 5 percent of dry powder typically expires every year, Triago is forecasting that twice the historic average will “reach term without being invested if purchases continue at their current pace”, the firm said in a quarterly report. 

As a number of boom-year vintages creep closer to their investment deadlines, more fund mangers are likely to request additional time to deploy capital. Some requests will be accepted, with many funds featuring built-in extension options to their LPAs. Others, meanwhile, will be denied by today’s weary limited partners. In a past commentary piece, PE Manager argued there may exist a middle ground between the two outcomes. 

Uninvested capital returned to limited partners will likely find its way back into general partners’ hands, however, and could help drive an 18 percent increase in fundraising from $270 billion in 2012 to $318 billion this year, according to Triago.

“The expectation is that the vast majority will indeed be reinvested in private equity, especially given that a lot of pension funds are increasing their allocations,” said Triago founder and chairman Antoine Drean.

Large US pension funds that allocated an average of 8.3 percent of assets under management to private equity in 2012 are expected to increase allocations to 9.7 percent in 2013, according to consulting firm Bain and Company.