Alan Pardee, a veteran of the fundraising trade at his own firm and formerly at Merrill Lynch Private Equity Funds Group, said it’s likely the plentiful supply of new GPs will continue as buyout pros break off from larger firms to venture on their own. While he expects private equity fundraising to remain healthy in 2015, he offered words of caution to experienced buyout pros pondering their own shop.
“Not every person or team that leaves a large fund will find a market ready to invest in their new fund,” he said. “The key components for success are similar to those for fundraisings for established firms. Most important is a successful track record in a series of deals that are on strategy with the new fund. In the case of a spinout, securing attribution at some level from the former employer typically is vital.”
New spinouts must also offer LPs a team that’s worked together in the past, along with a strategic path to attractive returns in the current marketplace, he said. One example is Five Point Capital, a Texas energy firm founded by veterans of Vulcan Capital and Iberdrola Energy Holdings that recently closed on $450 million for Fund I and Fund II. Mercury Capital worked on the deal.
Overall, the relative lack of megafunds in the market may cause 2015’s fundraising totals to fall slightly from 2014. But overall, Pardee expects a “robust, healthy” marketplace for private equity funds.
To be sure, fundraising could be impacted by a large stock market drop, unexpected moves by central banks around the globe or a geopolitical crisis.
But overall appetite for private equity by institutional investors remains strong, including credit funds and secondary funds, among others. The sectors of focus for a particular fund and the opportunities available to a fund team also matter to LPs, Pardee said.
(Correction: This story has been updated to fix an error in the website address for Mercury Capital.)