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Editor’s Letter: Feeding frenzy awaits fundraisers

Along with funds already in the market, three big-hitters are likely coming back this year, which should make for a limited partner feeding frenzy.

Vista Equity is coming back this year with Fund VII, which will likely target as much as Fund VI ($11 billion) or more, sources told me. LPs anticipate Vista will officially launch fundraising as early as the first quarter.

Another big fund to watch for: Thoma Bravo’s next flagship technology fund, which may target $10 billion, according to a Bloomberg report. That target is not settled and could change, the article pointed out. Thoma Bravo’s last fund raised $7.6 billion and capped fundraising.

Thoma Bravo closed its prior flagship pool in 2016, while Vista closed Fund VI last year. This puts both firms on a rapid investment pace. In the past, LPs described the fundraising competition between the two firms as an “arm’s race.”

Finally, Warburg Pincus is preparing its 13th flagship fund with a potential target of $13.5 billion, according to a report from Private Equity International. A spokesman for Warburg declined to comment on the news.

Each of these funds is expected to be highly sought after by LPs. Once they officially hit the market they will likely have more difficulty accommodating LP demand than reaching their targets. Other mega-funds in market this year include Carlyle Group, which officially launched its seventh fund last year targeting $15 billion, and TPG, which has been talking to LPs about launching its eighth fund this year with a target of at least as much as its prior fund, which closed on $10.5 billion.

It will be interesting to see if LPs hesitate to cut large checks to firms that just closed huge funds a year or two prior. We haven’t seen that type of hesitation yet on the part of the investor community, at least when it comes to the top-performing firms in the market.

But after a few years of near-record fundraising levels and investments made in a historically high-priced era, at what point will fear start to overtake greed, as the old saying goes? Maybe not until the market itself cools off, which doesn’t look to happen anytime soon. Or maybe that fear/greed ratio is indeed what precipitates a market correction. Once confidence ebbs and doubt creeps in, markets start to go sideways.

For now, the PE fundraising cycle appears in good form, with GPs delivering hefty distributions that LPs are re-committing to the asset class.

Photo: Private Equity Editor Chris Witkowsky reflects at home. Photo by Wendy Witkowsky