In 2021, expectations are high for private equity (PE) firms to continue with the same momentum just as in 2020. Considering their performance between January and May this year, PE firms had their deals amount to 2346, a 21.9% growth compared to the same months in 2020. Gary McGaghey and other experts attribute this meteoric increase to tremendous market tailwinds resulting from historically low-interest rates. The other causative factor is record fundraising, which stands at a top value of $150.1 billion for US PE dry powder.
Currently, PE firms continue to evolve according to changing economics. They are targeting insurance firms since insurance products are longer and more stable liabilities. For example, life insurance, annuities, and care insurance require people to be involved in long-term premiums, offering insurance companies larger pools of cash assets. This business proponent attracts PE firms in their search for new money. As Gary McGaghey explains, PE investments in insurance spread the risk of returns on assets, enabling insurance companies to increase their returns on equity.
PE firms are also good at anticipating environmental, social, and governance (ESG), helping portfolio companies improve screening before committing to investments. Special Purpose Acquisition Companies (SPACs) recently came up, providing a competitive ground with PE firms. However, although the hype increased around SPACs, recent evaluations by experts like Gary McGaghey reveal that PE firms remain more attractive than SPACs due to their typical low-interest rates.
The role of PE firms is rapidly changing. Commonly, people perceive them as only interested in purchasing assets and capital items at lower rates and then selling them at improved market rates. However, some PE experts, such as Gary McGaghey, who runs Williams Lee Tag, have initiated changes making them value proponents, for instance, in undertaking environmental, social, and governance (ESG) before companies undertake investments.