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Deal or No Deal? The Outlook for Private Equity

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There has been a dramatic dropoff in fundraising and activity in the private equity sector since 2008, but a flurry of activity may be on the horizon.

Harvard Business School professor Josh Lerner said private equity has had many challenges over the last few years, but there’s been a modest uptick in the number of deals recently. Lerner says that’s because we’re near the “use it or lose it” phase. He’s referring to the funds raised prior to the financial crisis.

Those funds, otherwise known as “dry powder,” need to be invested within 5 or 6 years; otherwise, the money has to be returned to the institution that handed it over to private equity in the first place. As of now, the amount of dry powder is estimated to be about $1 trillion.

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Deals in the near future may be expensive, Lerner said. As time runs out to spend the funds, it may prompt private equity groups to pay prices that are higher than they should be.

“Money to burn leads to higher prices,” he said.

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