- Average time to close falls to 12 months, per Preqin
- Average fund size more than doubled compared to 2013
- Fundraising environment extremely active: researcher
Massive reinvestment in private equity has sped the average amount of time it takes firms to raise new funds.
The average fund closes after a year on the market, year-to-date, according to Preqin. The pace of fundraising picked up from last year, when general partners took an average of 17 months to raise a new fund.
“Record distributions from private equity funds in recent years have spurred extremely high levels of investor satisfaction with the performance of the asset class,” said Christopher Elvin, Preqin’s head of PE products, in a statement. “This has resulted in an extremely active fundraising environment in which fund managers are seeking to capitalize on huge investor demand for funds.”
Limited partners who’ve succeeded with their private equity portfolios are reinvesting returns back into PE, and previous success appears to be the greatest marker for speed and fund size. According to Preqin, 47 percent of funds raised by “consistent top performing managers” close within half a year of their launch.
Preqin defines top-performing GPs as the 40 managers whose performances most consistently ranked in the top quartile among buyout and VC firms. More than two-thirds of those firms with funds in market were able to raise pools that exceeded their target sizes.
“While there are concerns about the level of dry powder currently waiting to be deployed, we have not yet seen the average returns of private equity funds suffer too much,” Elvin wrote in an email. “The private equity market is more diversified than it was a decade ago, and while cumulative fundraising is on a par with 2006-2007, it is spread across a larger number of geographies, strategies and sectors.”
Silver Lake, whose previous fund was netting a 31.9 percent IRR as of Sept. 30, managed to hold a final close on $15 billion in a matter of months this April. It took CVC Capital Partners less than a year to collect roughly $18 billion from investors. The European buyout firm closed its seventh flagship fund in June.
CVC and Silver Lake’s latest vehicles indicate another trend outlined in the Preqin report: The average fund size through the first five months of 2017 was $625 million, up 68 percent from the $372 million averaged in 2013.
Notably, Preqin also found that smaller funds, particularly those raised by new or emerging managers, still face challenges in raising new funds quickly and easily.
“A manager’s experience, measured by the amount of capital raised since 2013, directly correlates to fundraising success,” Preqin wrote in a June report. “The majority (55 percent) of managers to have raised $1 billion or more since 2013 have spent an average of 12 months or less on the road, compared with 31 percent of managers that have raised less than $500 million.”
Action Item: For more information on Preqin data, visit www.preqin.com
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