More private-equity firms are trying to raise more money than ever before, creating stiff competition for investor dollars during a rough time for markets and deal-making.
There are 2,845 funds currently in the market, collectively aiming to raise over $1 trillion in capital, according to Preqin. Both figures represent increases of more than 60% over the beginning of 2021.
Among those seeking capital are at least nine private-equity funds with targets of $20 billion or more, including the latest vehicles from giants Blackstone Inc., Hellman & Friedman LLC and Apollo Global Management Inc. Together, these nine megafunds are responsible for more than $216 billion of the total being sought, the data show.
Private-equity firms have historically raised a new iteration of a fund every three or four years. Many are now coming back for more in half that time, following a frenzy of leveraged-buyout activity last year.
The surge in requests for new cash commitments has overwhelmed the typically lean investment teams at institutions such as pension funds and endowments, advisers to funds and investors say. After a number of years of stellar performance across the industry, many must now figure out which managers will continue to perform well without the tailwind of a bull market.
Some have opted to invest portions of their 2023 budgets this year to secure a place in the more coveted funds. But many are holding back on making commitments to all but their top managers to get a better sense of the economic outlook and how private-company valuations, which are reported on a significant lag, have fared as stocks have swooned this year.
“Right now, it’s just taking longer to raise funds,” said Josh Zweig, co-head of U.S. private-equity research at advisory firm Cambridge Associates LLC. He said the factors that drove robust fundraising over the past three years, including rising fund sizes and a proliferation of new vehicles and strategies, have started to reverse.
Fundraising fell 43% year over year in the first half of 2022, according to Preqin, which only counts funds that have fully completed the process toward the total. Publicly traded firms are expected to provide updates on their fundraising efforts when they report second-quarter earnings, beginning with Blackstone on Thursday.
For private-equity firms, it also is a bit of an awkward time to be asking for more money. The dollar volume of global buyouts dropped by 44% in the second quarter as valuations fell and debt became more expensive. The turmoil has meant firms have largely paused selling off assets, with the market for initial public offerings all but grinding to a halt after a banner year in 2021. That means institutional investors aren’t getting as much cash returned to them—a major source of capital to invest in new funds.
The biggest firms with the most brand recognition have a record of successful fundraising and may still end up with the big hauls they are seeking. Many are increasingly looking to high-net-worth individuals, a group they have been aggressively courting, to help them meet their loftier targets, fundraising advisers say. That could mean the biggest burden of the current fundraising environment ends up falling on smaller and newer funds.
“Everyone is nervous and concerned about the war [in Ukraine], the stock market going down, inflation…but the big names are still crushing it,” said Jonathan Karen, a fund formation lawyer at Simpson Thacher & Bartlett LLP whose clients include firms such as Blackstone and Silver Lake.
This story has been published from a wire agency feed without modifications to the text