The private equity fundraising market is seeing a strong trend towards vehicles raising more capital in shorter timeframes, according to new research from data provider Preqin.
Private equity funds closed in 2013 spent an average of 20 months in market, the most recent high, and closed at an average size of $372 million, Preqin said in a statement late last week. In contrast, funds closed in the first five months of 2017 were in market for just 12 months, and raised an average of $625 million.
Preqin’s research also shows that both size and performance make a different in fundraising speed. Funds raised by the largest fund managers and funds raised by consistent top-performing firms were most likely to fundraise quickly and successfully.
Funds run by managers which have already raised $5 billion or more since 2013 stand a three-in-four chance of exceeding their target size, while almost half of funds raised by consistent top performers spend only six months or less in market, Preqin said.
Additional highlights from Preqin’s June 2017 Private Equity Spotlight:
- Average fund sizes are rising, going from $372 million in 2013 to $625 million in 2017 YTD.
- Large funds spawn over-target successors: 75% of funds closed since 2013 by managers which have already raised $5 billion or more in the period have exceeded their target size. This compares to just 36% of funds with managers which have raised $500 million or less.
- However, funds from larger fundraisers do not have the fastest process. Average time in market decreases according to capital previously raised up to $5 billion, then increases, suggesting that raising the largest vehicles does take additional time.
- Vehicles raised by consistent top performing fund managers tend to raise more quickly. Forty-seven percent of funds raised by consistent top performing managers closed within six months of launch, compared to just 17% of all other funds.
- Two-thirds (68%) of funds from consistent top performing managers have exceeded their target size since 2013, compared to 46% of other funds.
“Record distributions from private equity funds in recent years have spurred extremely high levels of investor satisfaction with the performance of the asset class,” said Christopher Elvin, head of private equity products for Preqin, in a statement. “Much of the capital returned to investors has been redeployed in private equity, as investors seek to fulfill their allocation plans. This has resulted in an extremely active fundraising environment in which fund managers are seeking to capitalize on huge investor demand for funds.
“However, it is clear that while investor appetite is high, it is also primarily focused on established fund managers with a successful track record,” he added. “Fund managers which have previously raised significant amounts of capital are likely to be able to do so again, while firms which consistently perform well can raise vehicles far more quickly than the industry at large. For smaller fund managers, or those which have yet to build a track record, fundraising can remain a lengthy and difficult process.”
Founded in 2003, Preqin is a leading source of information for the alternative assets industry, providing data and analysis via online databases, publications and bespoke data requests. The company’s Hedge Fund Online service is a leading source of intelligence on the hedge fund industry, with performance information for over 16,000 hedge funds across strategies and geographies. More than 47,000 professionals in 90 nations use the company’s products.