Insofar as fundraising conditions serve as a reasonable proxy for the current health of private equity as an asset class, it’s fair to say that this once-ailing patient enjoyed a remarkable rally in 2013.
According to figures released this week by PEI’s Research & Analytics team, private equity managers collected about $365 billion in commitments last year (even we can work out that daily average). That’s 21 percent up on the 2012 total, and represents the highest annual figure since the good old days of 2008.
It’s worth remembering how improbable a prospect this kind of bounce looked even a year ago. After all the macro uncertainty of 2012, even top-performing GPs were struggling to persuade investors to part with their capital as 2013 dawned, leading to reduced targets and lots of expectation management.
But all of a sudden, before the first quarter was out, the tide started to turn –and the fundraising market became a much less scary place, particularly in Europe. Even firms that had previously been struggling found some momentum, while a lucky few were able to raise big new funds in no time at all. Of course, it wasn’t easy for everyone; ‘bifurcation’ remains the mot du jour in fundraising circles. But compared with 2012, 2013 was a very different ball game.
Clearly some of the reasons behind this were perfectly rational: with distributions flowing in, LPs were eager to invest in the hope of maintaining their allocation levels (not helped by the fact that their listed assets tended to be rising in value too). There was also an absence of other options: yields were so low elsewhere that alternatives represented the only hope many of these big institutional investors had of hitting their return targets.
What seems less rational, even now, is the shift in sentiment that was also evident in the first half of the year. North American LPs that had been refusing to touch Europe with a bargepole suddenly decided that maybe the Eurozone wasn’t going to collapse after all, and that some parts of the region were actually looking pretty attractive again. Only time will tell whether this judgement was premature.
Not everyone will remember 2013 as a year of recovery, however. Life got much tougher for GPs in emerging markets, particularly during the summer when the US Federal Reserve threatened to stop its asset-buying programme. Asia-Pacific funds, which had raised a combined $62 billion in 2011, collected a relatively paltry $27.6 billion in 2013.
So what does all this mean for 2014? More of the same, no doubt. In fact, conditions should if anything be easier (in the absence of a big macro shock); now that so many firms have already raised money, those left in the market will be able to enjoy the same structural advantages in a less competitive environment. Moreover, many firms have learned the lessons of the last few years and emerged leaner and sharper as a result.
The year’s already gotten off to a strong start: Apollo, Bowmark, CapVis and KKR are just four firms to have closed above-target funds in the first week or so of 2014.
All of this clearly speaks to a more optimistic mood in and around private equity, particularly compared with a year ago – and particularly with respect to the situation in Europe. Although it’s worth noting that the new KKR fund – a $2 billion global special situations vehicle – is particularly interested in European opportunities. That’s a lot of smart money betting there’s still some pain ahead for the region yet.
PS. A reminder: voting for the PEI 2013 awards closes at midnight today. If you haven’t already done so, it’s not too late to tell us who you think were the stars of 2013. Click HERE to get voting.