PE Looks to Ring in New Year with New War Chests

On New Year’s, revelers offered each other champagne toasts in the hopes that 2011 turns out better than 2010. In the world of private equity, wishes for the new year come with a number attached – specifically that new funds committed by limited partners will surpass $120 billion by next New Year’s and could reach $130 billion.

The prediction – from two top limited partners at a conference on Tuesday – represents a substantial improvement on the $84 billion in U.S. private equity funds closing in 2010, according to PitchBook, a private equity data provider.

Last year, pension funds, endowments and other LPs were still smarting from the economic crisis, and to a large extent they still are, but the outlook for 2011 from Garth Troxell, a partner at Altius Associates, and Kevin Nee, president of Wilshire Private Markets, was positive.

“Purse strings are starting to loosen up a little bit,” said Nee, who predicted 2011 would bring $120 billion in new placements. “Anecdotally, we’ve seen some states wanting to increase their (pension fund) allocations. “In some cases, they are just 70% funded.”

Troxell, who reckoned private equity would see $130 billion in new commitments, agreed the environment was improving but suggested fundraising won’t likely be getting much easier. “There are more GPs in the market now that are pursuing those funds,” he said.

The two were part of a panel discussion on the outlook for raising funds in 2011, part of the Dow Jones Private Equity Analyst Conference in New York.

While the value of commitments may rise this year, the panelists said, so too will the amount of time it takes to close.

“A lot of LPs are going to take their time to commit to a fund, and they’ll be taking longer because they can,” said Thomas Hale, a panelist and both a partner and chairman of Wilmer Hale’s fund formation practice. “I think the market’s fundamentals are still difficult. We’re seeing a very long time from the start of a fund to its closing.”

The hold-up may be due, at least in part, to the terms of new funding commitments. Holding out for better terms, especially with regard to time commitments and clawbacks, may indicate that a great deal of power still resides with the LPs. Says Troxell, “while a deal’s terms are never enough to decide to invest, they can certainly be a reason not to invest.”