Banks are still being stingy with their commercial loans, but there are others secret sources of cash are eager to deploy it.
Important election years are notoriously difficult times for financial institutions and investors to make long-term decisions. There is simply too much uncertainty associated with a potential change in the Administration or a shift in party control of Congress. Investors like certainty. But there is one thing that investors like more than certainty—returns. Right now investors are sitting on one of the largest stockpiles of cash in history and they are waiting to deploy that cash if the right investments are presented to them. For some investors—your company may be the perfect opportunity.
Private Equity
According to Preqin, a leading financial data and intelligence company, private equity firms currently hold in excess of $430 billion in capital ready for investment. When private equity firms receive capital to invest, it comes with an expiration date. Most funds have a lifespan of five to six years. This means that such firms must find an investment, deploy the capital and liquidate the investment (hopefully with a juicy profit) in that time span. Approximately $170 billion of PE capital will reach its expiration date between 2013 and 2015. If PE firms wait much longer to deploy this capital, they risk running out of time to see their investments through to maturity.
Non-Financial Companies
In addition to PE firms, non-financial companies are also sitting on a mountain of cash. According to Moody’s Investor Services, these companies have in excess of $1.2 trillion in capital ready to invest. Approximately $700 billion of this cash held by U.S. corporations is maintained outside of the U.S. for tax and other reasons. This leaves $500 billion for domestic investment. Technology, healthcare, energy and consumer products company control nearly 60 percent of this cash. These sectors rely on growth through innovation, which means acquisitions and investments in promising companies are required to maintain long-term success.
Sovereign Wealth Funds
The largest concentration of capital for deployment is held by sovereign wealth funds, which at the moment control approximately $4.6 trillion in capital, a 50 percent increase over the past four years. Sovereign wealth funds source the capital from the cash reserves of the governments they represent. Asian and Middle Eastern countries control some of the largest wealth funds in the world. In recent months many of these funds have stopped investing in European government securities, increasing the pressure to find new opportunities for investment. While it is unlikely that the China Investment Corporation will take interest in your company, they invest in other investment funds which may indeed be interested.
