Scoops & Analysis

Fundraising this year not as great as 2013 as bubble fears loom

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Surprise! Fundraising was strong in 2014 but not as great as last year.

Globally, there were 957 funds that closed this year with an aggregate capital raised of $480.1 billion, data from private equity data provider Preqin said. This compares to 2013 when 1,196 pools completed fundraising with an aggregate capital of $530.4 billion, Preqin said.

“It is hard to believe that 2013 was more active than 2014,” said one LP who was surprised by the numbers. “2014 was unbelievably active with a bizarre number of managers seemingly back in the market.”

Last year likely saw more megafunds in the market, which probably boosted totals, the LP said.

Distributions were also strong this year. PE funds returned $359 billion from realized investments during the first nine months of this year, Triago said in October. This total outpaced last year’s record of $344 billion for all of 2013, the report said.

Times are good for PE this year, maybe too good. High prices in the M&A market made it a great time to be a seller, while the ample debt available for deals “was ridiculous,” the LP said. The Dow Jones Industrial Average also broke through 18,000. “I do think we are in bubble in M&A, fundraising, Venture, PE,” the LP said. “Absolutely.”

The market is so frothy that some groups that shouldn’t be able to raise capital are succeeding, the LP said. The lack of experience could cause such groups to act irrationally and chase deals they shouldn’t be going after. “Instead of four PE funds now nine are chasing a company,” the LP said. “It makes you very worried overall. When you look at the years where the most amount of capital was raised, those aren’t the best performing years.”

A second LP said the frothy valuations should cause investors concern. “If multiples are at all time highs you know an adjustment is going to happen,” the second LP said.

With that warning in mind, here are the year’s biggest global funds, according to Preqin.

  1. Hellman & Friedman: The San Francisco PE firm took first place when it needed less than a year to raise its eighth buyout pool. Hellman & Friedman Capital Partners VIII LP closed at $10.9 billion in November. H&F was active in deal making this year; recent investments include ABRA Auto Body & Glass, Grocery Outlet and Renaissance Learning.
  1. Bain Capital: Mitt Romney’s old firm took second place when Bain closed its flagship fund at $7.3 billion, Reuters reported in April. Bain’s previous flagship fund, Fund X, raised $10.7 billion in 2008. Notable deals in 2014 for the Boston-based firm include an investment in Virgin Cruises, the new cruise line from Richard Branson’s investment firm Virgin Group. The PE firm also acquired a 50 percent stake in TOMS, a “one for one” shoe, eyewear and coffee company.
  1. Permira: After nearly three years fundraising, Permira closed its fifth fund in June at its hard cap of 5.3 billion Euros (US$7.2 billion). The London-based firm announced its fundraising plans in September 2011 with a 6.5 billion Euro target, Reuters reported. That was then scaled back to between 4 and 5 billion euros. Earlier this month, Permira said it sold an 11 percent stake in German fashion retailer Hugo Boss for 500 million euros ($620 million). Permira also sold Arysta LifeScience for about $3.51 billion.
  1. Clayton Dubilier & Rice: CD&R ranked fourth this year when it closed its ninth flagship fund at $6.4 billion in May. One of the oldest PE firms around (they were founded in 1978), CD&R targets sectors such as consumer/retail, healthcare, industrial and business services. The New York-based PE firm invested in Healogics, CHC Helicopter (CHC Group) and Mauser in 2014.
  1. Centerbridge Partners: Lastly, Centerbridge finished fundraising for its latest $6 billion PE fund in October. Centerbridge Capital Partners III beat its $5.75 billion target even after the Pennsylvania Public School Employees’ Retirement System cancelled a $100 million commitment to the fund over disagreement on contractual terms.

 

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