“For my purpose holds
To sail beyond the sunset, and the baths
Of all the western stars, until I die.
It may be that the gulfs will wash us down:
It may be we shall touch the Happy Isles,
And see the great Achilles, whom we knew”
-Tennyson “Ulysses” (1842)
From a high level, Pitchbook data illustrates significant improvement in the general capital overhang picture with the cumulative overhang declining over 25% to $432B in 2012 from its peak of $576B in 2008. Unfortunately, it is difficult to find general media outlets covering any such an improvement in the overhang picture or attempts to dig into the data.
I would suggest there are three important questions that need to be asked from the perspective of the middle market investor:
- Is the urgency implied by the capital overhang balanced across vintages?
- Do the challenges of the capital overhang impact all sectors (e.g. mega buyout vs. middle market) in the same way?
- How does this impact investing with private equity firms in the middle market?
In this first of three installments, I want to tackle the first question.