Private Capital Fundraising Sees Fewer Funds Close In Q3 2016 by Preqin

The private capital industry has seen fundraising falter again in the third quarter of the year. After an underwhelming first quarter, the industry seemed to regain some momentum in Q2, with 315 funds closing worldwide, raising an aggregate $173bn in investor commitments. However, that momentum does not seem to have been maintained in Q3, as 246 private capital funds raised a combined $122bn. Given that Preqin expects these figures to rise by 10-15% as more information becomes available, this is comparable to the $131bn raised by funds closed in Q1, and represents the lowest number of funds closed in more than four years.

Overall, then, the first three quarters of the year have seen 864 private capital funds raise a combined $425bn in investor commitments. This is the first time since 2013 that fewer than 1,000 funds have closed in the first three quarters of the year, and represents a 9% decline on the aggregate capital raised compared to Q1-Q3 2015.

Q4 Fundraising Market

However, new private capital funds have continued to come to market, and globally, there are now 2,935 funds seeking a total of $983bn from investors. This is significantly up from July, when Preqin recorded 2,798 funds seeking an aggregate $938bn, and represents continued growth in the size of the private capital fundraising market. Given this, it is perhaps unsurprising that fund managers across the industry think fundraising is one of the key challenges for the 12 months ahead, and Preqin’s most recent survey of alternative assets investors indicated that they found sourcing attractive investment opportunities increasingly challenging.

Private Capital Fundraising

Private Capital Fundraising

Private Equity Fundraising Slows in Q3 2016

After aggregate fundraising reached $111bn in Q2 2016, the total capital raised by private equity funds was significantly lower in the third quarter, with 170 vehicles securing an aggregate $62bn in investor commitments. This is typical of the fundraising cycle over recent years: the second and fourth quarters have seen the highest quarterly fundraising totals in four of the past five years. Preqin expects Q3 totals to rise by 10-15% as more information becomes available, probably surpassing Q3 2015 (180), although it looks unlikely to match the $80bn raised by 201 funds in Q1 2016.

North America-focused fundraising also failed to match Q2 levels, when 104 private equity funds raised $61bn: in Q3, 104 funds secured a combined $36bn in investor commitments. Meanwhile, 30 Europe-focused private equity funds closed in Q3, raising an aggregate $15bn. This is significantly down from the $36bn raised by funds closed in Q2, but on par with previous quarters. Elsewhere, 22 Asia-focused funds raised a total of $8.5bn, while 14 funds focused on the rest of the world secured $2.7bn.

  • Dry Powder: As of the end of September, private equity fund managers hold a record $857bn in dry powder. This represents an increase of over $100bn from the end of 2015, and a 5% increase from the $818bn recorded at the end of Q2.
  • Venture Capital: Fifty-six North America-focused venture capital funds raised a combined $9bn in Q3 2016, while six Asia-focused funds raised $2bn. Seven Europe-focused venture capital funds closed in the quarter, raising $0.7bn.
  • Largest Funds: The largest private equity fund to hold a final close in the third quarter was Thoma Bravo Fund XII, which closed in September on $7.6bn. Only 10 private equity funds closed in Q3 on $1bn or more.
“The private equity fundraising market has been very active over recent quarters. Q1 2016 saw the highest Q1 fundraising total in over five years, bracketed by nearrecord amounts of capital secured by funds closed in the quarters before and after. Q3 2016 fundraising has fallen from these levels, although in the wider context fundraising remains on par with what we have seen in previous years. This decrease in fundraising activity seems to be spread across all regions; although the number of North Americafocused funds closed is similar to Q2, the total capital raised by those funds is lower, while Europe-focused aggregate capital raised has more than halved. As dry powder in the industry gets ever closer to $1tn, we may see fundraising stay lower as investors wait for fund managers to start putting capital to work.”
Christopher Elvin, Head of Private Equity Products

Private Capital Fundraising

Private Debt’s 2016 Fundraising Struggles Persist in Q3

Q3 marked a further slowdown in private debt fundraising: 22 funds reached a final close, securing $9.6bn in investor capital, with Preqin expecting these figures to rise by 10-15% as more information becomes available. This is notably lower than the $20bn raised in Q2, and marks the second quarter in 2016 where fundraising has been substantially down on quarterly levels raised since 2013. North America-focused private debt funds accounted for the majority of activity in Q3: 13 funds raised $7.7bn, representing 59% of funds closed and 80% of aggregate capital raised globally through the quarter.

In addition to the slowdown in private debt fundraising, vehicles are taking longer to reach a final close. In 2016 so far, funds have spent an average of 20 months on the road, four months longer than in 2015 and two months longer than the previous high of 18 months seen in 2011 and 2012. Although funds may spend longer marketing themselves, there has been a significant uptick in the proportion that exceeded their target size: nearly two-thirds (64%) of funds have raised more than their stated aim so far in 2016, compared with 45% in 2015.

  • Fundraising by Type: Direct lending fundraising declined significantly from $9.0bn in Q2 to $1.0bn in Q3; distressed debt and mezzanine funds both had a relatively strong quarter, securing $4.2bn and $3.9bn in capital commitments respectively.
  • Funds in Market: At the start of Q4, there are 306 private debt funds currently seeking a combined $147bn in investor commitments. The largest fund, Oaktree Capital Management, is targeting $7bn for distressed investments and has held a third close.
  • Dry Powder: Private debt dry powder is on the cusp of surpassing the $200bn mark for the first time ever; as at the end of September, fund managers held $199bn of investible capital, an increase of $9bn from the end of 2015.
“The private debt industry entered 2016 riding a swell of investor enthusiasm and expecting further expansion. Following a disappointing opening quarter, Q2 seemed to offer hope that fundraising was recovering; however, Q3 saw sluggish activity return, with lower levels of fund closures and less capital raised. Europe-focused funds, in particular, are failing to capitalize on expected investor enthusiasm as of yet. Nonetheless, as noted at the end of Q2, the fundraising landscape remains intensely competitive, which may impact the general length of the fundraising process for many managers. Even among the largest funds in market, many of which have already held interim closes, there is no guarantee that they will end their fundraising process this year. Private debt funds as a whole are having to stay in market for longer periods.”
Ryan Flanders, Head of Private Debt Products

Private Capital Fundraising

Real Estate Fundraising Dips in

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