Private Capital Fundraising Falters In Q1 by Preqin
Mark O’Hare – Chief Executive, Preqin
The private capital fundraising market in the first quarter of 2016 provides something of a contrast to the activity seen in 2015. Every quarter of that year saw private capital funds raise in excess of $130bn globally, with several asset classes posting record or near-record aggregate capital figures for the year. However, in Q1 2016 private capital funds have raised $111bn overall; although Preqin expects these figures to rise by 10-20% as more information becomes available, this looks set to be lowest quarterly fundraising total since Q3 2013 (see page 2). Only infrastructure and natural resources fundraising exceeded the totals seen in Q4, as several mega funds closed focused on these industries (see pages 5 and 7). Private equity and private debt in particular have seen activity in Q1 fall significantly from the previous quarter, with both the number of funds reaching a final close and the total capital raised falling (see pages 3 and 6).
However, there is clearly still a lot of capital available in these markets, and there are indications that activity through the rest of the year could grow. With the exception of private debt (see page 6), dry powder has risen within each asset class, and in many cases now stands at a record high. Additionally, investor sentiment remains generally positive, with private capital investors in many sectors stating that they plan to maintain or increase their allocations in 2016. Seeking commitments from these investors there are a record 2,722 funds targeting almost a trillion dollars (see page 2). If investors keep to their allocation intentions, 2016 could be another landmark year for the industry.
Private Capital: Global Fundraising Slows in 2016
The closed-end private capital industry witnessed a slowdown in fundraising activity in Q1 2016, with both the number of funds reaching a final close and the aggregate capital raised failing to match the levels seen through 2015. Globally, 219 private capital funds closed raising a combined $111bn1, down from the 299 funds which raised $140bn over the same period last year. This represents the lowest quarterly fundraising total since Q1 2013, when funds raised $95bn, and is 34% lower than the most recent fundraising peak of $167bn in Q3 2015.
This slowdown in fundraising activity was widespread; all alternative asset classes except infrastructure and private equity showed a decline in the aggregate capital raised compared to Q1 2015. Asia-focused fundraising in particular showed a sharp decline, as 23 funds focused on the region raised $8.5bn, down from 42 funds which raised $14bn in Q1 2015. This represents the lowest fundraising total for the region since Q3 2013, when private capital funds raised $6bn.
- Fundraising by Region: Europe-focused funds raised $40bn, up from $30bn the previous quarter, while North America-focused fundraising fell from $89bn to $60bn. Rest of World-focused vehicles saw $3bn in investor commitments in both quarters.
- Funds in Market: Despite the slowdown in the number of funds reaching a final close, the number of private capital funds on the road continued to grow in Q1. At the start of Q2, there are a record 2,722 private capital funds in market targeting an aggregate $949bn in investor commitments.
- Biggest Funds: The largest private capital fund to close in the first quarter was Advent Global Private Equity VIII, which closed in March on $13bn. Twenty funds across all asset classes closed on $1bn or more in Q1, down from 26 the previous quarter.
“2015 was another robust year for the private capital industry. Total fundraising for the year again exceeded half a trillion dollars, and many asset classes saw their total assets under management reach record highs. In particular, the second half of the year saw many megafunds closed, and significant increases in dry powder.
In the wake of this activity, it is unsurprising that the fundraising market entered a period of relative quiet in Q1, as fund managers turned to invest some of the capital they have accrued. However, with investor sentiment across most asset classes remaining high, fundraising through the rest of 2016 could return to the levels seen in 2015.”
Mark O’Hare, Chief Executive
Private Equity: Number of Final Closes Remains Steady, but Aggregate Capital Falls
The first quarter of 2016 saw 151 private equity funds raise an aggregate $71bn1. Given that Preqin expects these figures to rise by up to 20% as more information becomes available, the number of funds closed looks set to approach the 156 and 179 funds closed in Q3 and Q4 2015 respectively. While funds reaching a final close are still behind the same period last year (202), the aggregate capital has surpassed the $67bn seen in Q1 2015.
North America-focused funds saw a slowdown in fundraising through the quarter. Eighty-eight private equity funds focused on the region raised $38bn, which fails to match the rate of fundraising seen in 2015, when North America-focused funds raised $183bn. Despite the weakening Euro-Dollar exchange rate in recent months, the pace of Europe-focused fundraising in 2016 looks set to exceed the $71bn raised in 2015, as 37 funds reached a final close in Q1, raising a combined $28bn.
- Fundraising by Type: Buyout funds that reached a final close in Q1 raised a combined $44bn, despite no Asia-focused buyout funds closing. Venture capital funds raised $11bn globally, while growth funds raised a total of $6bn in the quarter.
- Funds in Market: Having set records at the end of 2015, the number of private equity funds in market continued to grow in Q1 2016 and there are currently 1,685 funds on the road. The amount these funds are targeting an aggregate $476bn.
- Dry Powder: Having risen by 8% across 2015, private equity dry powder stood at $829bn at the end of the year. Since then the level of dry powder has increased by a further 6% in Q1 to stand at $881bn at the end of the quarter.
“The private equity fundraising market in 2015 was characterized by an increasing amount of capital being raised by fewer fund managers. This has reversed in the first period of 2016, as the number of funds reaching a final close has stayed steady, but the aggregate capital raised globally has fallen.
The first quarter of the year typically sees a slowdown in fundraising levels after a crescendo of activity at the end of the year. Several mega funds saw final closes in Q4 2015, while global market volatility has increased in Q1 2016. However, investor sentiment remains high, and the number of funds being marketed to investors has continued to grow.”
Christopher Elvin, Head of Private Equity Products
Real Estate: Value Added Strategies Prop up Fundraising in Q1 2016
Private real estate fundraising stayed steady in Q1 2016, with the aggregate capital raised matching the previous quarter, despite fewer funds reaching a final close. In the opening quarter of the year, 31 closed-end private real estate funds closed raising $21bn1, the same as the amount raised by 54 funds in Q4 2015. This marks a continued slowdown from the recently buoyant fundraising landscape, which saw