Mumbai: The private equity (PE) and venture capital (VC) industry continued to grow in the quarter ended 31 March, but the capital is getting concentrated among a few large fund managers, according to a report by alternative assets tracker Preqin.

Around 219 funds have raised a combined $100 billion in the three months ended 31 March, compared with the $95 billion secured in the year earlier, the report said. While the capital raising number remained almost flat, the number of fund closures has seen sharp divergence, with 340 funds closing in the first quarter of 2018. This indicates that capital is becoming more concentrated among a few large funds.

In fact, Q1 2019 marks a five-year low in the quarterly number of fund closures, the report added.

Proportion of funds failing to meet their targets at a new low of 16%.
Proportion of funds failing to meet their targets at a new low of 16%.

Among Asia-focused funds, this downward trend is even more pronounced with 28 funds securing $14 billion in Q1 2019, which represents the fifth consecutive quarterly decline in the number of funds closed.

However, Preqin said that this was not necessarily indicative of a slowing market. “There are a large number of Asia-focused funds currently in market, many of which have already secured significant capital through interim closes. It may suggest that, in a crowded marketplace, fund managers are finding it more difficult to attract sufficient capital to complete their fund-raising process," the report said.

The first quarter also saw fund-raising activity refocus on the North American market, the largest market for PE/VC funds. Investment vehicles targeting the region marked their second highest first quarter fundraising total with 133 funds securing $63 billion.

Europe-focused fundraising activity struggled to rebound from the lull, with Q12019 recording the lowest level of activity in an opening quarter since 2015.

The top PE funds, which achieved a final close in Q1, included $12.6 billion US-focused buyout fund Thoma Bravo Fund XIII, $7 billion US-focused buyout fund Genstar Capital Partners IX and $4.6 billion Asia buyout fund from TPG Capital—TPG Asia VII—for which India forms a major market.

While the number of fund closures globally was low, funds that were able to close in Q1 2019 did so quickly and successfully, said Preqin.

“The proportion of funds failing to reach their targets has fallen year-on-year to reach a new low of just 16% in Q1. At the same time, six out of 10 funds closed had been in market for 12 months or less, a significant jump from previous years," the report said.

This points to the emergence of a two-tiered fundraising market, wherein experienced fund managers are routinely oversubscribed and, therefore, can raise large sums of capital in a quick fundraising process, it added. The PE fundraising market continues to be a highly competitive one with almost 3,926 funds seeking an aggregate $1.0 trillion at the end of the first quarter of 2019.

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