The fund raising environment continues to be challenging. The $41.3 billion collected by the global private equity industry from 82 final fund closes in Q2 2010 is the lowest total since 2003, and is a reflection of the continuing harsh fundraising conditions for managers seeking capital, according to Preqin, a London based agency that tracks private equity fund raising globally. This only points to the fact that the recovery in the fundraising market anticipated by many in the industry, including Preqin, has yet to occur.
A look back at the fund raising pattern in the last quarter reveals that about 17 funds focusing on Asia and the Rest of World region gathered a total of $9.0bn and the funds focusing on the US have raised the most capital during Q2 2010, with 46 funds raising a total of $24.3bn.
A few Indian funds who raised money during this period are CX Partners, which made a final close of its debut fund in excess of $500 million; Avigo Capital Partners, which closed its third fund at $240 million; Ascent India Capital Advisors, which raised $350 million and Rs 675 crore raised by Aditya Birla Capital Advisors. Several other funds like Multiples Alternate Asset Management and ICICI Venture Funds Management also held their first close in the last six months.
However, the number and aggregate fundraising target of funds in market has dropped considerably over the course of the last year, which is due primarily to a slowdown in new fundraising launches, plus an increase in the number of funds being abandoned or put on hold.
There are currently 1,522 funds on the road seeking $560bn worldwide, this represents a significant drop from the 1,623 funds seeking $889bn in Q1 2009, said the Preqin report.
“The fund raising environment has improved from the previous year. But the LP’s have grown very conscious on two fronts – the fund size and the quality of the fund managers”, Hetal Gandhi, Managing Director, Tano Capital India Advisors, who is also out on the road to raise its
second fund told VCCircle.
More Interim Closes Indicate Possible Improvement
While on the fund size, it is a smaller and digestible fund size that goes down well with the LP’s and only those fund managers who have been able to raise money in the past or have track record would be able to raise money in future. Consequently, either most of the new or first time fund managers have deferred their fund raising plans or dropped it. This could be due to reasons like fund raising being an expensive exercise or the well established fund managers are already sitting on capital and being very patient.
The increased time taken for funds to achieve a final close is leading to more funds holding multiple interim closes in order to put capital to work while continuing to attract new investments. According to the Preqin data, about 47% of funds currently raising have held an interim close, with these funds seeking an aggregate $265bn. 11% of funds in market have now held three 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.
“I think there is no dearth of capital. There needs to be proper planning and detailed orientation on how to time the market. The fund size, purpose and goals should be defined. A lot of institutional money and in fact commitments from new institutions is waiting to be deployed. One needs to be consistent in the approach,” Renuka Ramnath, who went solo to set up her own private equity venture Multiples Alternate Asset Management, and concluded the first close of fund at $250 million told VCCircle in a recent interview.
Real Pick Up In 2011
Echoes Tim Friedman, company Spokesman, Preqin, “With market conditions improving, the churn of capital is starting to pick up, and this will have a positive impact on new fundraisings as investors seek to reinvest distributed capital.
Although institutional investors are growing in confidence following the recovery of private equity fund performance after the big drops we saw last year, fundraising remains an extremely challenging prospect. Preqin’s June 2010 LP survey shows that most investors (76%) are
simply looking to maintain allocations in the next 12 months. While in previous years maintaining an allocation would require significant reinvestment of distributed capital from existing investments, the fact that distributions to investors have been so low means that investors have not had to invest in new funds at the same level in order to keep their allocations steady.
Another important factor to consider is that while there are still lots of funds on the road, and amongst them offerings from some top-quality managers, many of the brand-name and best-performing managers have delayed the launch of their next funds due to the current climate and the fact that they still have available capital from older vehicles.
Now that deal-flow has started to pick up, there will be an increased need for a significant number of these big name fund managers to launch new offerings towards the end of this year and start of next year. It is therefore likely that we will see a real pick-up in activity as we move into 2011, helped by the plans of more than a third of investors to increase allocations in the longer term.”