Private equity funds raised a total of $345bn in 2016, on par with the post-Global Financial Crisis record. Half of all funds closed exceeded their target size, with the average fund size rising to a record $476mn, surpassing the previous high of $446mn in 2007.

The 2016 Fundraising Update also reviews activity in each private capital asset class through the year, and looks at the fundraising market going into 2017.

Private Capital In 2016: Continuing 2015’s Momentum

The private capital industry has been enjoying a sustained period of strong fundraising, accumulating over $2.8tn over the past five years. Fund managers have benefitted from growth in investor demand: institutional investor appetite for private capital has increased over recent years and 79% currently invest in the industry. A similar proportion of investors have a positive or neutral perception of private capital, according to Preqin’s latest survey in December 2016.

2016 has followed this pattern, with over a thousand funds reaching a final close, securing $602bn in commitments (data as of 3 January 2017). As more information becomes available, Preqin expects this figure to rise by up to 10%, which would see 2016 fundraising approach the pre-GFC record levels seen in 2008. However, it has not been a uniformly successful year. While the infrastructure market is celebrating a banner fundraising year, natural resources and private debt funds are both struggling to replicate the successes they experienced in 2015. At the same time, more capital across the industry is fl owing to the largest funds, leaving smaller fund managers having to work harder to secure commitments from investors.

Looking to 2017, this growth period does not show many signs of ending in the coming months. Nearly 3,000 funds are currently in market at the start of the year, seeking in excess of a trillion dollars from investors. At the same time, dry powder in almost all asset classes has risen over the past 12 months, and now stands at $1.47tn across the industry. This level of activity brings its own set of challenges, as fund managers and investors must both work hard to find the opportunities that best appeal to them. However, the industry as a whole remains very much on the rise, and the year ahead could see private capital propelled even more into the financial mainstream.

Private Equity

Private Equity: Another Successful Year

2016 was another robust year for the private equity fundraising market; 807 funds closed globally, raising a combined $345bn (data as of 3 January 2017). Preqin expects these figures to rise by up to a further 10% as more information becomes available, which will put 2016 beyond the post-Crisis record of $348bn seen in 2014. This also marks the fourth consecutive year in which annual fundraising totals have exceeded $300bn, although it remains some way off the nearly $400bn raised by funds closed in 2007 and 2008.

Although the aggregate capital raised through the year was greater than in 2015, the number of funds closed was lower, down from 944 to 807 in 2016 Consequently, the average fund size in 2016 reached a record $476mn, surpassing the previous record of $446mn for funds closed in 2007.

Fundraising Success

Private equity funds have been growing more successful in their fundraising efforts over recent years. 2016 has seen the fourth consecutive annual decline in the proportion of funds failing to reach their target size at final close, down from 41% of funds closed in 2012 to a new low of 25% of funds closed in 2016. At the same time, the proportion of funds that have exceeded their target size has risen, from 33% for funds closed in 2012 to half of funds closed in 2016. However, the proportion of funds that closed on 125% or more of their target size fell across the year, down from 24% of 2015 funds to 19% of 2016 funds.

Funds In Market

Perhaps in part due to the recent strength of the fundraising market, the number of new vehicles being marketed to investors has been climbing over the past few years. At the start of 2016, 1,630 private equity funds were on the road; a year later, this figure has climbed to a new record of 1,835 vehicles seeking investment.

At the same time, the total capital being targeted by private equity funds in market has surpassed half a trillion dollars. Funds being marketed to investors at the start of 2016 were seeking a combined $488bn in capital commitments, but at the start of 2017 private equity funds on the road are seeking an aggregate $526bn.

2016 has been another banner year for the private equity industry, and fundraising has continued the period of robust capital levels recorded in recent years. The record levels of capital distributed to private equity investors in recent years has prompted growing demand for access to vehicles in market. This has allowed fund managers to raise ever larger sums, often exceeding the levels of capital they were initially seeking, and the average size of private equity funds closed in 2016 has exceeded even that seen during the boom days of 2007-2008.

At the same time, an increasing number of new funds are coming to market, and this level of activity has reached successively record-breaking levels. Managers marketing new funds judge that investor demand is high and that they will be able to attract capital to their vehicles. However, the congested nature of the marketplace can make the fundraising process difficult, especially for smaller or less experienced managers, who will need to find effective ways of differentiating themselves and their funds.

Christopher Elvin

Head of Private Equity Products

private capital

Private Debt: Lower And Slower In 2016

2016 saw 119 private debt funds close globally, raising a combined $74bn (data as of 3 January 2017), with Preqin expecting these figures to rise by up to a further 10% as more information becomes available. Although fundraising does not seem likely to approach the $96bn raised by private debt funds closed in 2015, it is on par with the $78bn and $75bn raised in 2013 and 2014 respectively.

However, this level of capital has been accrued by a lower number of funds than has been seen in recent years. 2016 seems set to see the lowest number of fund closures since 2012 (110), as the pace of fundraising slows: funds closed in 2016 spent an average of 20 months being marketed to investors, a sharp increase on the 16-month average for funds closed the year before.

Fundraising By Type

Direct lending funds account for the highest number of vehicles closed through the year, with 43 such funds raising a combined $21bn. This level of capital was equalled by distressed debt funds, despite just 15 funds of this type closing in 2016, while 33 mezzanine funds raised an aggregate $26bn, the lowest number of closures since 2012 (30). Conversely, direct lending dominates those funds currently seeking investment. Of the 293 funds in market, 131 are direct lending vehicles, and these funds are seeking $56bn of the $132bn targeted in total. Just 42 distressed debt funds are targeting $40bn, while 59 mezzanine vehicles are seeking a combined $15bn in capital commitments.

Capital Concentration

Part of the reason for the pace of fundraising slowing

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