Sentiments in global fund-raising are showing some signs of improvement if data from Preqin, a London-based firm tracking the sector, is a pointer.
About 81 PE funds worldwide reached a final close in Q3 2010 raising an aggregate $57 billion, showing a small increase from the $49 billion raised in Q2 2010, says Preqin. But, overall, fundraising remains extremely challenging, and is occurring at a fraction of the rate that the industry was seeing in the boom days of 2006–2008.
In a research note, Preqin said, it was projecting that conditions will continue to improve in Q4 2010 and beyond.
“Based on our conversations with institutional investors around the world, placement agents and fund managers, we are predicting that conditions will continue to improve slowly in 2010, with a more dramatic rise coming in 2011. We are projecting total fundraising for 2010 to reach around $260bn by the end of the year, ” said Tim Friedman, Preqin spokesman.
It is interesting to note that Asia and the rest of the world got a substantial pie of the global fundraising with 23 funds focusing primarily on Asia and the Rest of World region gathered a total of $7.8 billion. Funds primarily focusing on the US have raised the most capital during Q3 2010, with 37 of them raising a total of $41.1bn. About 21 primarily European focused funds raised an aggregate $8.3 billion.
In terms of strategies or niches that is going down well with the LPs, buyout funds raised the most capital, with 11 funds raising an aggregate $20.4 billion. This figure includes Blackstone Capital Partners VI, which closed on $13.5bn in mid-July. Five distressed private equity funds raised an aggregate $8.9 billion.
Among sectors, real estate and infrastructure gained the maximum traction. About 19 private equity real estate funds closed with total commitments of $8.8 billion. Three infrastructure funds closed raising $8.3 billion while 20 venture funds held final closes totaling $3.7 billion.
After the number and aggregate fundraising target of funds in market fell consistently over the last year, Q4 2010 sees a small rise in both the number and value of funds being raised when compared to the previous quarter –possibly a sign of rising confidence among fund managers that conditions are starting to improve. There are currently 1,550 funds on the road seeking $573 billion worldwide.
A host of India-focused funds are out on road to raise money: IDFC real estate fund, ICICI offshore tranche, BTS cleantech fund, BCP Advisors, Peepul Capital, Everstone Capital and Blue River capital. Personality-led funds include Renuka Ramnath's Multiples Alternate Asset management, Subbu Subramaniam's MCap Advisors, while ex-Aureos team is also setting up its own fund and PR Srinivasan or PRS (former MD, CVCI) too are out to raise funds.
With LPs looking at better alignment of interests with GPs, it is taking longer to raise funds. For funds closed in 2010, the average time taken was 19.8 months, double the average time taken in 2004, further evidence of the challenging nature of the fundraising market.
The increased time taken for funds to achieve a final close is leading to more funds holding multiple interim closes to put capital to work while continuing to attract new investments.
About 44% of funds currently raising have held an interim close, with these funds seeking an aggregate $247 billion. And, 13% of funds in market have now held two or more interim closes, meaning that they are likely to hold a final close within the next few months. This does indicate good momentum in the market and hints at possible improvement in the future.
On what is good news to the PE industry, is the optimism of the LP fraternity to this asset class.
In a survey of 100 conducted by Preqin in Q3 2010, 39% stated that they would be committing more capital in 2011 than 2010, with 49% committing the same levels, and only 12% intending to commit less.
LPs are mostly satisfied with how their private equity portfolios have performed, with 70% stating that private equity returns had met expectations. However, a significant 21% stated that returns had fallen short of expectations with only 9% seeing returns exceed expectations.