Total capital raised by new US private equity firms and their first funds came just shy of $7.5 billion in 2016, across 26 vehicles. Although both figures were distinct increases from 2015—which logged 17 first-time PE funds and $4.6 billion raised—as a proportion of total US PE fundraising, first-time activity still remains relatively low.
First-time US PE funds as a percentage of total fundraising
A considerable driver of that decline was doubtless the spike in first-time PE funds raised from 2006 to 2008. Nearly 850 fresh vehicles were closed during that timeframe, indicative of the optimistic nature of that particular boom. Contrarily, during the recent surge of overall PE fundraising since 2013, the corresponding number of first-time funds has stayed quite low.
Carlson Capital's Double Black Diamond Fund returned 85 basis points net in August, bringing its year-to-date net return to 4.51%. According to a copy of the fund's September update, which ValueWalk has been able to review, its equity relative value and event-driven strategies outperformed during the month, contributing 131 basis points to overall P&L. Double Read More
This is most likely due to sheer crowding in the market more than anything else. Not only has there been significant capital overhang for some time now due to pre-crisis fundraising but also, as the buyout cycle has slowed over the past two years, there have been fewer opportunities to put capital to work. Without as much clarity in the investment landscape for fledgling fund managers to customize strategies and target markets, some may be dissuaded from embarking on the fundraising trail.
Another contributing factor is that limited partners tend to prioritize established relationships in times of uncertainty. That, with the trend toward allocating more to larger, more experienced general partners, certainly doesn’t help give a boost to first-time fundraising efforts.
Looking forward, it is unlikely there will be a further surge of fresh US funds hitting the market in 2017—at best, the tally observed in 2016 will recur.
Note: This column was previously published in The Lead Left.
Article by Garrett James Black, PitchBook