Low rates facilitate private equity's global spread

Subject

Private equity trends.

Significance

With global interest rates close to record lows, new private equity (PE) firms are opening at record rates, raising the most money since the 2008 financial crisis. However, with banks facing stricter supervision and higher capital requirements, PE firms are less able to use leverage to increase their returns.

Impacts

• More PE funds will mean heightened competition and higher prices for new investments.
• The surge in PE investment may mean the top of the cycle is near.
• The upcoming US presidential election could affect carried interest taxation, decreasing the net returns to PE GPs.
• Increased PE investment in the US petroleum industry should prevent a significant dip in US oil production.