PE Funds Increasingly Struggle to Hold ‘First Close’

A first close can be a very happy milestone for those on the fundraising trail. It signals investor confidence in a team; it can also provide much-needed money to invest in new deals.

Unfortunately, the first close is also becoming more elusive, according new findings from the private equity data provider Preqin. Further, says Preqin, those incapable of reaching a first close “quickly” can lose momentum and fall short of the total amount of capital that they’ve targeted.

Some of the firm’s specific findings:

* Twelve percent of the funds closed last year were able to secure more than three-quarters of their target capital by the time they reached a first close. That’s down sharply from 2006, when 33% of funds could make the same claim.

* Of the funds closed last year, the 58 percent that held a first close within three months went on to meet or exceed their fundraising target. Only 36 percent of funds that took more than a year to close met or exceeded their fundraising target last year.

*Overall, 61 percent of the private equity funds raised last year held a first close within six months; 12 percent took more than a year.

You can find out more specifics in the full report — including what percentage of buyout funds held a quick first close vs. mezzanine funds, and whether investors were more inclined to quickly fund distressed private equity firms vs. natural resources funds.

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