We’re revisiting our popular dry powder/NAV chart analytic for all geographies and investment styles. The purpose is to identify recent trends in the overall market and discern what may be shaping the relationship between cash flows.
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Focusing on the past year, we see the continuation of a trend that started in March 2020: an accelerating divergence between dry powder and NAVs. In Q4 2019, the gap stood at roughly $500 billion between the two. As of Q2 2024, the gap widened to $1.2 trillion. Aside from a brief plateau of a few quarters in 2022, the trend has run uninterrupted throughout the 2020s.
Though we plot these datapoints together, NAV and dry powder aren’t directly correlated as they can change independently. In our analysis, the relationship between the two has changed over time. At the big picture level over the past 30 years, we see three eras: Parity from 1996 – 2009, then in 2010 the formation of a gap that held steady for the next 10 years, followed by post-Covid rapid NAV growth that has continued to the present time.
There are countless factors that go into shaping these numbers, but when reviewing the chart the main drivers are the overall growth of private markets throughout the 2000s, the 2008 financial crisis, and the COVID recession in 2020.
As mentioned above, NAV growth has been mostly unimpeded in the 2020s, adding nearly $2 trillion.
Though we expect the pace of growth to slow, private markets continue to carve out larger portions of institutional portfolios throughout the world. That could lead to the organic growth of both NAVs and dry powder through the rest of the decade. Additionally, there are sector catalysts such as AI that could prove to be the next boon for alternatives and help sustain valuations.
That said, there is a potential headwind: The recent motion to block the HP – Juniper Network acquisition has dealmakers in a more wait-and-see mode. The uncertainty could lead to coming quarters of elevated dry powder as firms wait for the dust to settle to further deploy capital.
This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.
Mr. Colin Devereaux is a Content Specialist at Cobalt, a FactSet company. In this role, he oversees Cobalt Market Data, working to continually improve the timeliness, accuracy, and scope of the data set. He also works with private equity and venture capital clients on data-request projects and internally with sales and marketing to ensure the market data and benchmarking data services are properly leveraged. Mr. Devereaux earned a degree in finance from Bentley University.
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