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The US Private Equity Market in a Post-Covid Era

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​The start of 2021 saw a lot of uncertainty around the Private Equity market in the US. Due to the fall out from covid, a decrease in PE deals was seen in 2020 for the first time since 2009 and many experts predicted this to continue into the new year (1). Conversely, others expected it to be a bounce-back year and make up for the decrease in deals experienced throughout 2020. But even the most optimistic of individuals couldn’t have predicted what we’ve seen!

Record Breaking Year

The market did indeed bounce back, and to a degree that has never been seen. By October 2021 Private Equity funding in the US had already broken all records, in regards to both the number of deals made and the actual volume of investment (2). It wasn’t just the PE market that was witnessing these unprecedented investment levels but Venture Capital too. In fact, by the end of Q2 US Venture Capital firms had spent $150B, 90% of their investment figures for the entirety of 2020 (3). Evidently investment was seen at a magnitude never-before witnessed this year, but the big question is what caused this?

The US Government Printing Money

According to the Federal Reserve, the US Government committed to printing between $7.6 Billion and $9.6 Billion in the year of 2021 (4). This is an increase of 30-66% on the quantity of dollars printed in 2020, a substantially larger jump than is traditionally seen. That’s saying something given that 21% of all US dollars in circulation as of 1st January 2021 had been printed in the previous year (5). With all this extra money, it was inevitable that we’d see an increase in investment.

Low Interest Rates & High Inflation

This year also saw interest rates hit a historic low. The average US savings account is paying out just 0.06% with even high-yield savings only possessing an interest rate of 0.5% in most major banks (6). This alone would be bad enough, but it also comes at a time when the US is experiencing its highest rate of inflation since 1982, hitting 6.8% just last month (7). This led to the disastrous situation of the US public experiencing a negative real average savings rate of -5.34%, the highest in the nation’s history (6).

Taking all this on board, it’s easy to see why the PE and VC markets in the US have had such record-breaking years. Put simply, there’s more money in circulation than ever before while record breaking interest and inflation rates mean leaving your money in a savings account would see it depreciate in value. Organisations and individuals have been forced to invest their savings at an unprecedented rate. Quite frankly, it’d be foolish to do anything else with your money at this moment in time.