Dan Primack of Fortune, a man worried about the results of 2011 private equity deal flow, posted this article today after reading Bain & Company's annual Global Private Equity Report (which was published today). The firm agrees with him in that GPs holding a significant amount of dry powder with an expiration date on it (courtesy of the LPs) feel pressured to invest that capital. This "use it or lose it" feeling is definitely there, and I agree with Dan that it's going to affect 2011 PE deal flow.
But what I think is important to recognize here is if the size of private equity firms matters. For example, many lower mid-market firms I met during the end of 2010 and the beginning of 2011 were being extremely cautious in terms of finding the perfect deal. However, that cautiousness I've seen amongst lower mid-market firms is due to many deals dropping dead in the water as they were working out the terms. That circumspection they are feeling is going to continue along the year, but coming back to the size issue, LPs may not favor firms because of their investment criteria in terms of size and apply the same amount of pressure to everyone.
Rich Lawson of Huntsman Gay Global Capital also raises a good point here: debut funds have it easy, but you could potentially see more growing. Another thing that could happen is that GPs could convince LPs to move that expiring dry powder into new funds. By rolling over the capital into the next fund, you get new terms and the approaching expiration worries off deal teams' backs.
2011 private equity activity is under a very large microscope; if the year's deal flow turns out to be better than expected (and so far it's looking ok), 2012 deal flow is going to exponentially increase. If not, I think the industry will be in a logjam for at least another year.