The world’s top private equity firms in 2022 manage tens and sometimes hundreds of billions of dollars.
The private equity industry is at a crossroads. After a swift downturn in 2020, private equity deal flow has recovered to record highs. 2021, in particular, was fantastic for the industry. The healthy stock market and flood of global liquidity during the pandemic created a lot of opportunities for private equity to profit from rising valuations and attractive exit scenarios. Now, however, rising interest rates threaten to make capital more expensive to come by. Meanwhile, the stock market has seen rising volatility in 2022, with smaller growth-focused companies being especially hard hit. This could significantly lower forward returns for many private equity operations. Regardless, many investors are turning to private equity as a safe haven from the current broader stock market volatility. Here’s a look at 10 of the largest private equity firms today, along with a brief rundown of what private equity is and how it makes its money.
How private equity works.
Private equity companies generally obtain capital from institutions such as pensions, endowments and sovereign wealth funds. They use this capital primarily to invest in private companies. Often, private equity will buy a business that is underperforming and implement changes to streamline operations and improve profitability. Over time, as the business’s financial metrics improve, the private equity firm can list the company via an initial public offering or otherwise monetize the asset to deliver returns for its investors. Private equity firms generally earn a management fee based on the amount of total assets under management, or AUM, along with realizing gains when the value of portfolio companies increases. It’s a lucrative business, and these 10 firms have made it to the top of Private Equity International’s list of the largest players in the industry, ranked by money raised over the last five years. Here are the top 10 firms on the PEI 300 list for 2022, which debuted in June.
KKR & Co. Inc. (ticker: KKR)
The PEI 300 has a new leader this year, with KKR taking the top spot. KKR was founded in 1976 and became a major player during the 1980s leveraged-buyout boom. The firm became famous for its involvement in the acquisition of packaged food and tobacco company RJR Nabisco in what was then the largest buyout in history. As its No. 1 ranking shows, however, the firm hasn’t rested on its laurels. It listed its stock to the public in 2010, and shares have done phenomenally well, with the price up roughly 500% since its IPO. KKR shares have sold off in recent months, but investors shouldn’t lose sight of the bigger picture. KKR has been a leader in growing fee-paying assets under management, and it has deployed those new funds it has attracted at a healthy clip. As long as this remains the case, KKR should deliver more value for both its customers and shareholders.
Blackstone Inc. (BX)
KKR’s gain came at Blackstone’s expense, as the private equity giant slipped to No. 2 in the rankings this year. Don’t let the recent slide diminish from Blackstone’s tremendous success. BX stock was trading at about $10 coming out of the 2008 financial crisis and is now trading in the neighborhood of $120. This gives investors a taste of the riches available to a well-run private equity shop. Blackstone converted from a publicly traded partnership to a C corporation in 2019 and has developed a broad line of business. Through the first quarter of 2022, it managed $298 billion in real estate, $268 billion in private equity, $83 billion in hedge funds, and $266 billion in credit and insurance. As of its latest quarterly report, Blackstone also reported that it had $139.3 billion of undrawn capital, or what’s colloquially known as dry powder. This gives Blackstone a ton of flexibility to put money to work if the current downturn in the economy worsens.
EQT
EQT is one of Europe’s largest investment firms. Founded in 1994, the company manages more than 90 billion euros, or about $96 billion, of assets. EQT’s portfolio features a heavy concentration of companies in continental European countries, though it is involved in North America and other regions, as well. EQT made a big splash in 2019 with its acquisition of then-publicly traded Zayo Group, which offers communications and bandwidth services across 133,000 route miles in North America and Western Europe. At more than $14 billion, the Zayo acquisition was one of the largest ones in recent memory, and it should be poised for long-term structural growth as data usage continues to surge. EQT is publicly traded, but shares are listed on the Swedish exchange, making it less practical for many American investors to own.
CVC Capital Partners
CVC Capital Partners is a British private equity firm. It was originally founded as part of Citigroup Inc.’s (C) investment operations. The European piece of this would eventually become what is CVC today. The firm now has dozens of investments across a vast array of industries, including payment processing, health care, cybersecurity, building materials, toll roads and restaurants. CVC is notable for its investments in various sports leagues. The firm was a longtime investor in Formula One Group (FWONK, FWONA) and has current investments in other sports such as rugby and volleyball. CVC was planning on a multibillion-euro public offering on the Amsterdam’s Euronext stock exchange this summer. However, due to unfavorable market conditions, it appears that CVC may delay its initial public offering until 2023.
Thoma Bravo
Like several others on this list, Thoma Bravo has had tremendous success with investments in the software and technology industries. Thoma Bravo prides itself on its original “buy and build” strategy of taking ownership of and then expanding technology businesses in fast-growing parts of the economy. Traditional private equity works primarily due to leverage: Even a slow-moving asset can deliver strong returns with sufficient borrowed funds. However, private equity can reach another level when it combines leverage with high growth. Over the past few years, Thoma Bravo has been the beneficiary of a favorable liquidity environment. The rise of things such as special purpose acquisition companies, or SPACs; the Ark Invest funds; and other such disruption-focused vehicles have provided a ton of public market capital for early-stage growth companies. With the downturn in the market for IPOs, SPACs, and the Ark funds, however, it will be interesting to see how Thoma Bravo adapts its strategy.
Carlyle Group Inc. (CG)
Carlyle Group is another of the top publicly traded private equity shops. Shares listed on the Nasdaq in 2012. While performance had been uneven historically, Carlyle has found great success in the recent economic recovery, with shares doubling since the March 2020 lows. The company has long developed a truly global reach, with operations spanning 26 offices on five continents. Carlyle has topped the Private Equity International list in prior years. While the firm has slipped in the rankings, it remains formidable, with $301 billion of assets as of year-end 2021. CG stock has also dipped from $60 to around $40 in recent months, as analysts model out a slowdown in the firm’s outlook after an unusually prosperous 2021. Even with that being the case, however, Carlyle Group stock now trades below 9 times forward earnings, offering a solid value for investors today.
General Atlantic
General Atlantic is a growth-focused private equity firm with offices around the world. It primarily invests in direct technology, along with adjacent fields such as health care, life sciences, consumer and financial services. General Atlantic was founded in 1980 as the investment team for Atlantic Philanthropies. Atlantic Philanthropies, in turn, is the charitable arm of billionaire Charles Feeney. Bill Gates has cited Atlantic Philanthropies as an influence in the creation of his own Bill & Melinda Gates Foundation. Over the years, General Atlantic expanded from its charitable foundation beginnings, attracting more outside capital. It has used this to expand its influence internationally and move into additional industries and sectors. The growth trajectory remains intact, and indeed, General Atlantic rose into the top 10 of the PEI 300 leaderboard in 2022.
Clearlake Capital Group
Clearlake is one of the newer firms to make the top 10 of this list; Clearlake was founded in 2006. Headquartered in Santa Monica, California, the firm also has affiliates in Dallas, London and Dublin. The firm has more than $72 billion in AUM and has built its style around making long-term investments in firms to drive operational improvements. This is a contrast to many other private equity approaches, which primarily seek to benefit from using additional leverage or valuation multiple improvements to generate returns. Clearlake focuses primarily on small-to-midsize firms in the technology, industrial and consumers spaces, and the company’s senior investment managers have led or co-led more than 300 distinct investments.
Hellman & Friedman LLC
The PEI 300 list is ordered by the amount of capital that firms have raised over the past five years. This specific methodology has allowed traditionally smaller technology-focused shops to rise up the leaderboard in recent years thanks to the outsize amount of activity in the tech sector. Hellman & Friedman is one such beneficiary of this trend, as it rises into the top 10 this year. The San Francisco-based firm states that its mission is to “do one thing & do it well.” Specifically, that’s a focus on rapidly growing technology firms. Hellman & Friedman believes its singular dedication to this sector has made it a strong partner for its investees. The firm lists some of its portfolio investment companies to include Zooplus, Sprinklr Inc. (CXM), Vertafore Inc., Blackbaud Inc. (BKLB) and At Home. And over the past year, Hellman & Friedman, in partnership with Bain Capital, made big waves purchasing Athenahealth Inc. for $17 billion.
Insight Partners
Insight Partners, until recently known as Insight Venture Partners, is another new entry to the top 10. That’s in large part due to the firm putting together its 12th flagship fund recently, with this one bringing in a stunning $20 billion in new funds. With the success of this new flagship fund, Insight has now raised its assets under management to more than $90 billion. Insight is based in New York, but it’s been broadening its global reach with new offices in London in 2016 and Israel in 2019. It’s also starting to increase its exposure to markets such as Asia and Latin America. Insight’s guiding aim is a focus on companies with recurring revenue models such as software-as-a-service businesses. Insight can point to a host of successful early-stage investments including such winners as Shopify Inc. (SHOP), Alteryx Inc. (AYX) and Docusign Inc. (DOCU).
The top 10 largest private equity firms in the world:
— KKR & Co. Inc. (KKR)
— Blackstone Inc. (BX)
— EQT
— CVC Capital Partners
— Thoma Bravo
— Carlyle Group Inc. (CG)
— General Atlantic
— Clearlake Capital Group
— Hellman & Friedman LLC
— Insight Partners
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The Top 10 Largest Private Equity Firms in the World originally appeared on usnews.com
Update 06/08/22: This story was published at an earlier date and has been updated with new information.
