Q2 Fundraising: Looking for the summer lull

A lot of limited partners are taking deep breaths as June wanes and the first phase of private equity annual-meeting season comes to a close.

The travel, airports, hotel rooms, nights on the road — everything comes to a halt for the summer before kicking off again in the fall.

And in between the travel, LPs are busy assessing the flood of funds in the market. It’s been a crush of work and at least a few investors are more than happy for the summer lull to arrive.

Fundraising is not as strong as this time last year, second-quarter data compiled by Buyouts shows. But that doesn’t mean the market isn’t busy.

‘Steady as she goes’

“It definitely still feels steady as she goes,” says Brian Rodde, managing director at Makena Capital. “Sometimes fundraises come in waves, and right now it feels like there’s an abundance of firms raising capital.” 

“Anecdotally, I feel like I’m a very popular guy right now,” said John Stake, vice president of Hamilton Lane’s fund investment team. “Whether it’s new firms, spinouts or established funds, we’re seeing a lot of new funds on the market.”

Hamilton Lane received more PPMs in Q4 2017 than almost any other time in the firm’s history, Stake said. Since those are sent out early in the fundraising process, the number of PPMs they received then is likely indicative of how many funds are being marketed now.

Buyouts data shows PE and mezzanine funds raised a total of $86.45 billion year-to-date, collecting $36 billion in Q2 through June 27.

This pace does not match the frenetic activity last year, when firms raised $85 billion at the same point halfway through the year. The final tally for 2017 was $241.6 billion.

One dynamic in this strong fundraising environment is the vaunted one-and-done closing on funds offered by the most in-demand GPs. Cressey & Co launched fundraising for its sixth fund in March and held one closing, in June, on $995 million. And TowerBrook raised a total of $5.3 billion, closing its fifth PE fund at a hard cap of $4.25 billion and its structured investment platform at $1.05 billion.

“If it’s an expedited fundraise with an existing manager, we’re very comfortable with that. It’s a group we’ve known for a period of years. We’ve likely gotten advance warning of it,” Rodde said.

“Honestly that’s all the better. That means the investment team is spending less time on the road raising a new fund.”

As usual, this year has been marked by the closing of a few major funds, as well as a smattering of first-timers and emerging managers collecting capital.

The largest funds raised this year include Carlyle Group’s seventh fund, which raised about $16.3 billion and is heading toward its $18.5 billion hard cap.

GSO Capital Partners closed its third Capital Solutions fund on about $7 billion and American Securities closed its eighth fund on $7 billion.

First-time funds

Emerging-manager fundraising has been growing over the past few years as well-known executives leave larger shops to start their own businesses.

Some of the new shops in market this year including Provariant Equity Partners, a spinout from Linsalata Capital Partners targeting $200 million for its debut fund; CounterPoint Capital Partners, launched by three former Platinum Equity executives targeting $50 million for Fund I; and Nonantum Capital Partners, formed by ex-Charlesbank executives, which closed its debut on $385 million in April.

“I think one of the phenomenons we’re seeing is more first-time managers and spinouts. And that’s a trend that I think will continue for a long time,” said Whit Matthews, senior investment manager with Aberdeen Standard Investments.

Matthews added that the proliferation of new firms is a byproduct of the industry’s maturity.

“That’s a function of people having grown up in a private equity environment. It comes down to working the conference circuit and waving the flag, letting folks know that we’re interested in first-time firms and spinout firms.

“It’s formulating views not only on the firms, but the people within those firms. That’s a long way of saying that we’re mapping the entirety of our network to make sure we’re in front of those opportunities as they present themselves.”

Of course, the strong environment does not translate into easy fundraisings for every manager. Many still have to battle to get a fundraising done.

Several firms are exploring secondaries processes to cash out LPs in older funds and to provide injections of fresh capital into new funds, known as staples.

Providence Equity and Jordan Co are two managers exploring this type of transaction, which is a way to help a fundraising get across the finish line.

“For all the froth, of dollars getting raised and fundraising times compressing, there’s no shortage of managers who have to work really hard to raise funds,” Matthews said. “It’s certainly not the case for everybody.

“There’s [also] a number of groups out there that are doing a great job of growing in a reasonable fashion and constructively thinking about what the next fund should look like,” he said.

Update: This article was updated to use Aberdeen Standard Investments, the firm’s rebranded name.

Q2 2018 Fundraising Through June 27

 

Additional Attachments

Amount raised through Q2 2018 by fund type ($B)

FUNDS RAISED IN Q2 2018

Largest fundraisers in 2018 YTD

LBO funds raised by target size through Q2 2018 ($B)

Quarterly breakdown of amount raised by U.S.- based buyout and mezzanine firms ($B)

U.S. buyout and mezzanine fundraising ($B)