Welcome To The “Schizo” Fundraising Environment

There was a strange disconnect at the Dow Jones Private Equity Analyst Outlook conference, with near universal agreement among LPs and placement agents that a whole lot of sponsors will try to raise new funds this year.

Brian Adams of Alcatel-Lucent, for one, estimated that a good 20 percent of his existing GPs will be returning to the market. Many fund managers have been waiting for a better economic environment, he said. An attorney who works in fund formation for a major law firm told me at lunch that pretty much all of her clients will likely be in the market this year.

But at the same time, there was much debate about how and when PE funds will work through the so-called “overhang” of committed capital that’s yet to be put to work, which Dow Jones estimated in a panel discussion to be $400 billion. (The overhang! It’s replaced the “How big of an LBO can the market support right now?” as a staple question at post-financial crisis PE conferences.)

William Barnum of Brentwood Associates perhaps summed it up best, when he said that LPs are a bit “schizo” on the overhang. They might ask why you didn’t invest all that much during a given period (it was unclear if Barnum was talking specifically about his firm, or talking about the industry in general), then get all concerned that you don’t invest it just to get the money out the door.

So it seems that a lot of firms with a lot of uncommitted capital will be trying to raise new funds anyway. Not surprisingly, everybody agreed that it’s going to be very difficult fundraising market.

Hussein Khalifa of MVision and Charles Froland of Performance Equity Management said a lot of LPs are looking to shake-up their GP relationships, often with emerging, lower mid-market managers. Froland said what might have looked like a differentiated strategy 10 years ago now looks similar to a lot of other firms.

“Following the global financial downturn, people are saying now’s the time to reboot my strategies,” Froland said.

Adams, of Alcatel-Lucent, said he’s interested in growth equity, distressed, Asia and other fund strategies to invest in.

Bernard Vaughan is a senior editor at Buyouts Magazine. Follow his tweets @BVaughanReuters. Follow Buyouts tweets @Buyouts.