Here's a $1.2 trillion pile of cash, and it's not on corporate or government balance sheets

There are mountains of cash out there ready to be put to work.

Much has been made about the multi-trillion mountain of cash sitting on corporate balance sheets. Credit Suisse’s Andrew Garthwaite estimates $US1.4 trillion sits with US corporates and $US2.7 trillion is held by non-US corporates. Some experts believe that some of that cash will be deployed for, among other things, mergers and acquisitions (M&A).

Obviously, no one expects these companies aren’t going to unleash all of that cash for deals.

In a new research note, Garthwaite attempts to estimate how much liquidity out there is actually available for M&A.

“On conservative estimates, the combined firepower from corporate cash, re-leveraging and private equity ‘dry powder’ is $US4.2trn, or 10% of global market cap,” Garthwaite wrote.

The private equity money doesn’t get talked about much. But it’s massive, and they love buying out companies.

“According to the research firm Preqin, ‘dry powder’ stands at a record $US1.2 trillion,” Garthwaite said about private equity balance sheets. “For instance, Blackstone, in its first quarter results, reported ‘dry powder’ of a record $US64.5bn.”

And that’s the just the cash. Private equity firms often employ a lot of leverage. In other words, they borrow a lot of money to boost their buying power.

“If we assume that half of PE firms’ available funds are invested, and that a typical leverage multiple for private equity is 4x to 5x, then that could add a further $US3trn to corporate firepower,” Garthwaite said.

This is a massive pile of liquidity that cannot be ignored.

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