Q1 2017 saw the private equity industry approach its highest Q1 fundraising total since the Global Financial Crisis, driven by record capital commitments secured by North America-focused vehicles.

The private capital industry as a whole maintained its recent fundraising momentum, with 253 vehicles raising $156bn in Q1 2017. Over 3,000 funds are currently marketing themselves to investors, targeting more than a trillion dollars.

Private Capital: No Signs Of Stopping

The private capital industry has seen a sustained period of strong fundraising in recent years, with funds closed in 2016 alone securing $669bn in investor commitments. This momentum has continued in Q1 2017, as 253 private capital funds closed, raising $156bn. Preqin expects these figures to rise by around 10% as more information becomes available.

Typically, the first quarter of the year tends to see less activity, as many funds will look to close at the end of the preceding year. However, this does not seem to be the case in 2017: activity in the quarter is comfortably above the corresponding quarter of last year, and the total capital raised approaches the $170bn raised in the first quarter of 2008, the highest ever Q1 fundraising total. However, continued momentum in the fundraising market is becoming a source of increasing concern for fund managers and investors alike. Such strong activity has resulted in record levels of dry powder becoming available to managers, as investors seek to gain greater exposure to the industry. Having so much capital ready to deploy means that competition among fund managers for the best deal opportunities is fierce, and consequent upwards pressure on asset pricing is calling into question the ability of firms to sustain their recent high level of returns going forward.

Nonetheless, private capital remains an important element of institutional investment portfolios, and investors are continuing to commit ever-larger amounts of capital to fund managers. The number of funds seeking to secure this capital continues to grow, surpassing 3,000 at the start of Q2.

The key concern for the industry is to avoid the emergence of a two-tier fundraising market. Currently, the largest private capital firms are able to quickly raise mega funds that are hugely oversubscribed, while emerging managers face a long and difficult fundraising process. As investors are tending towards consolidation in their private equity programs, this trend will be monitored closely by sponsors and investors alike.

Private Capital Fundraising

Private Equity: Record Start To Year

The strong private equity fundraising activity that characterized much of last year has continued into 2017, as the industry is likely to record its highest Q1 capital total since the Global Financial Crisis (GFC). Globally, 175 private equity funds reached a final close in Q1 2017, raising a combined $89bn in investor commitments. Preqin expects these figures to rise by a further 10% as more information becomes available, thus surpassing the $90bn that was raised by funds closed in Q1 2016 and approaching the all-time high of $105bn seen in Q1 2008.

This level of activity was driven by an all-time Q1 fundraising record for North America-focused funds. Vehicles focused on the region secured $62bn, comfortably ahead of the previous record of $48bn in Q1 2016. By contrast, 31 Europe-focused funds secured just $12bn, compared to the $33bn they raised in the same quarter last year, while Asia-focused funds raised over $13bn in Q1 2017. As such, North America accounts for more than two-thirds of all capital raised in the quarter.

Key Findings:

  • Q1 2017 saw 175 private equity funds reach a final close, raising a combined $89bn. This is likely to approach the all-time Q1 fundraising record of $105bn seen in 2008.
  • North America-focused funds raised a total of $62bn, the highest ever Q1 fundraising total for the region. Europe-focused funds raised $12bn, down from $33bn in Q1 2016.
  • Buyout funds account for $54bn raised through the quarter, while private equity secondaries funds secured $13bn, the second-highest-capital total.
  • The largest fund closed in the quarter was KKR Americas Fund XII, which raised $13.9bn for buyout investments in North America.
  • Private equity dry powder continued to climb in Q1, rising from $821bn at the end of 2016 to reach $842bn as at the end of March.
  • At the start of April, there are 1,908 private equity funds in market, seeking a record $635bn from investors. This is driven in part by the $100bn Softbank Vision Fund.

The first quarter of the year is often a quieter period for fundraising activity, after a flurry of fund closures at the end of Q4, but in 2017 the private equity industry is likely to record its strongest start to a year since 2008. This is driven by record levels of capital being raised by North America-focused funds, particularly since vehicles focused on Europe failed to approach the level of activity they recorded in the corresponding quarter last year. This may be an indication that, although fundraising remains robust, it is increasingly being centred on a small coterie of large firms raising mega funds, many of which focus on the US.

Looking ahead, there is cause to believe that 2017 may ultimately come to be a record fundraising year for the industry. The three largest funds currently in market comprise, by their target sizes, the largest buyout fund raised since the GFC, the largest ever venture capital fund and the widely covered Vision Fund, which already dwarfs every other private capital vehicle ever raised after holding a first close at $80bn.

Christopher Elvin –  Head of Private Equity Products

Private Capital Fundraising

Private Debt: Direct Lending Sparks Strong Q1

The private debt industry recorded a strong start to 2017, as 21 vehicles reached a final close attracting $21bn in investor capital. Preqin expects these figures to rise by around 10% as more information becomes available. Although fundraising will still fall well short of the record $50bn secured in Q4 2016, the level of capital secured already surpasses the levels seen in three of the last five quarters, and is comfortably higher than in Q1 2016 ($11bn), marking a positive start to 2017.

Direct lending funds in particular drove fundraising, securing their highest quarterly total of all time. Twelve funds raised a combined $13bn in investor capital, exceeding the previous high of $12bn in Q3 2015. The two largest vehicles to close both operate direct lending strategies, and raised an aggregate $6.8bn between them. All other strategies recorded lacklustre fundraising, with no private debt funds of funds or venture debt vehicles reaching a final close. Four mezzanine funds secured a combined $1.2bn in investor capital, while one distressed debt vehicle, Carlyle Strategic Partners IV, closed on $2.5bn.

Key Findings:

  • Twenty-one private debt funds closed in Q1, securing $21bn in investor capital, a substantial downtick on the record $50bn raised in the previous quarter.
  • Direct lending funds accounted for the majority of quarterly fundraising with 12 funds securing $13bn, 57% and 62% of the aggregate totals respectively.
  • Nearly two-thirds (63%) of private debt funds closed in Q1 exceeded their target size, the largest proportion in the past five years.
  • Dry powder reached $200bn by the end of Q1, an increase of $4bn from the end of 2016 so far but still down on the $215bn recorded
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