The Sky is Not the Limit

Abstract

Private equity does not ‘scale up’ easily. Attracting more capital could make it a victim of its own success, with ‘too much money chasing too few deals’ the new industry mantra. This sector-level constraint has size and strategy implications for GPs and the institutions investing in private equity, as LPs alike. In its broadest definition, the private equity market is about twice as large as the market for public equity,¹ but the size of the institutional private equity market is by necessity, far smaller. The opportunities for entrepreneurship-arbitrage are rare and most potential targets are not suitable for institutional investing: companies are too small, their owners unwilling to sell, offer too little growth prospects, do not have the quality of cash flows to bear leverage, and so on.