Global private equity fundraising fails to pick up in Q1 2011

04-Apr-2011, CPI Financial

Funds primarily focusing on the US have raised the most capital during Q1 2011, with 45 funds raising a total of $25.9 billion. 24 primarily European-focused funds raised an aggregate $6.5 billion, while 24 funds focusing primarily on Asia and the Rest of World gathered a total of $9.9 billion.

Buyout funds raised the most capital, with 20 funds raising an aggregate $12.6 billion.    

Global private equity fundraising failed to pick up in Q1 2011. $42 billion was raised in Q1 2011 by funds holding a final close and fundraising remains at its slowest pace since 2003, according to Preqin. However, signs of life are starting to appear as more firms hold interim closes. 

According to Preqin data, 92 private equity funds worldwide reached a final close in Q1 2011 raising an aggregate $42.3 billion. This represents a small decrease from the $47.1 billion collected in Q4 2010, although Preqin said it would anticipate the latest quarterly figures rising slightly (10 per cent - 20 per cent) to match and possibly exceed the previous quarter's total as further information becomes available.

"It is clear that fundraising remains extremely challenging, and is occurring at a fraction of the rate that the industry was seeing in 2006 – 2008. However, there are some signs of life with a further 110 funds holding an interim close during the quarter, raising $26.3 billion towards their overall targets," Preqin said.

• Fundraising by Region: Funds primarily focusing on the US have raised the most capital during Q1 2011, with 45 funds raising a total of $25.9 billion. 24 primarily European-focused funds raised an aggregate $6.5 billion, while 24 funds focusing primarily on Asia and the Rest of World gathered a total of $9.9 billion.
• Fundraising by Type: Buyout funds raised the most capital, with 20 funds raising an aggregate $12.6 billion. This figure includes Golder Thoma Cressey Rauner X, which closed ahead of its $3 billion target on $3.25 billion. 27 venture funds closed raising a total of $9.4 billion, including Yunfeng Fund – a CNY 10 billion China-focused and managed early-stage vehicle, and InSight Venture Partners VII, a $1.5 billion US general venture fund. Four natural resources funds raised a total of $5.1 billion, including EnCap Energy Capital Fund VIII, which at $3.5 billion was the largest fund to achieve a final close during the quarter.
• Fundraising Momentum - Interim Closes: In addition to the 92 funds holding a final close, there were 110 funds which held an interim close during Q1 2011, raising a total of $26.3 billion towards their overall targets. Although Europe had a disappointing quarter for final closes, there were some significant interim closes for funds focusing on the region. This includes BC Partners' European Cap IX, which held a close of €4 billion on its way to a €6bn target – making it the largest single close of Q1. Montagu IV, another Europe focused buyout vehicle, held an interim close on €1 billion ahead of its €2 billion target.
• Funds in Market: After the number and aggregate fundraising target of funds in market fell consistently during 2009 and for most of 2010, Q1 2011 sees a continuation of the rise in both the number and value of funds being raised – a sure sign of rising confidence among fund managers that conditions are starting to improve. There are currently 1,649 funds on the road seeking $663 billion worldwide – this represents the highest ever number of managers in market at one time.
• Time Taken to Close Funds: For funds closed in Q1 2011 the average time spent in market was 16 months, significantly more than the 10.6 months required in 2005, but down from the average time taken of 20.4 months for funds closed in 2010.
• Looking Forward: While the number of funds achieving a final close has remained low, the LP community is growing in confidence, and is planning to commit to more private equity funds in 2011. In a survey of 100 investors conducted by Preqin in December 2010, 33 per cent of LPs were below their target allocation, compared to 13 per cent exceeding their targets. 54 per cent expected to invest more in 2011 than 2010, with 32 per cent intending to commit at the same levels and only 15 per cent stating that they would be investing less.
• Longer-Term Prospects: LPs are increasingly satisfied with how their private equity portfolios have performed, with 78 per cent stating that private equity returns had met expectations. 10 per cent of LPs stated that returns have exceeded expectations, while 13 per cent stated returns had fallen short of expectations – an improvement from earlier results in December 2009, which showed 23 per cent seeing returns falling short.

"The private equity fundraising market is currently in a transitional period. The majority of the significant funds which began fundraising prior to the onset of the financial crisis have now closed, with vehicles closing in Q1 2011 having mostly launched in 2009. With the typical fundraise now taking around 16 months from launch to finish, and with 2009 being a slow period for new fundraising launches, it is logical that Q1 2011 would be a slow period for final closes and we are anticipating an increase as 2011 progresses," said Tim Friedman from Preqin.

"Although overall figures are disappointing, there are signs of increasing investor confidence – especially in Europe where we have seen two significant interim closes for BC Partners and Montagu which point to a brighter future. With capital distributions picking up, LPs do have more cash available to invest, and this is reflected in the 54 per cent of investors interviewed who expect to put more capital to work in 2011 than last year," he added.

"As LP confidence returns, more and more fund managers are hitting the road, and the current number of funds in market is at a record level. Although overall levels for fundraising are set to increase, conditions for individual managers will be more competitive than ever."