DOWNLOAD: LP portfolios groan under strain of $1.2trn fundraising super cycle

Funds in market are seeking an almost 70% increase from the same time last year, according to PEI's latest quarterly fundraising report.

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Private equity funds are seeking almost $1.2 trillion as investors strain to keep pace with fundraising activity.

There were 3,801 funds in market seeking this combined total as of April, according to Private Equity International‘s latest quarterly fundraising data. This compares with just $690 billion across 3,114 funds at the same point last year.

The five largest funds in market are all seeking north of $20 billion, including Apollo Investment Fund X at $25 billion and Advent International GPE X at $23 billion.

“Private equity performance has been strong in the last few years, especially in the VC and tech space – hence, GPs are looking to strike while the iron is hot,” Niklas Amundsson, a partner at Monument Group, told PEI. “Fundraising cycles have shortened, with managers coming back to the market sooner, even if they have not fully invested their previous funds. GPs [would] rather secure commitments and not start drawing fees until they start investing the money.”

The five largest funds in market were seeking at least $114 billion between them as of 20 April. By contrast, the 10 largest funds were seeking $121 billion in April last year.

Funds raised $168.2 billion in the first quarter of this year, down about 30 percent from the same period in 2021 and 17.5 percent above the Q1 average for 2017-20.

Insight Partners XII held the largest close of the quarter at $20 billion, followed by KKR North America Fund XIII at $19 billion and Blackstone Capital Partners Asia Fund II at $11 billion.

Private equity’s ambitious fundraising targets have left some investors struggling to cope with the onslaught of re-up opportunities, as PEI explored in its March deep dive.

“Large funds are getting larger and returning to the market more frequently – not just in mega-funds, which we typically associate with PE, but even in VC – thus putting LP commitment pacing under pressure to speed up,” said Vish Ramaswami, managing director of Asia-Pacific private investments at LP advisory Cambridge Associates.

“We believe LPs are going to [be]… making cheque sizes smaller, although this may be risky when fund sizes and possibly minimum cheques are larger, [or] adopting a flight to quality by focusing on the ‘best’ managers. This will mean more scrutiny on not just the middling managers in the current portfolio, but also on the marginal next dollar available for commitment to funds new to the portfolio.”

LP portfolio sales came roaring back to prominence last year after a quiet 2020 as overallocated investors sought to free up liquidity to reinvest, Evercore senior managing director Nigel Dawn told PEI in February. There were $66 billion of LP portfolio deals on the secondaries market last year, equivalent to 49 percent of total transaction volumes, shattering the previous record year – 2019 – by $18 billion.

Emerging managers have borne the brunt of LP commitment pressures, Amundsson noted.

“Investment teams are often staffed for and used to conducting DD with tight deadlines and under time pressure; however, closing teams are often more capacity constrained and serve as bottlenecks in today’s market,” he added.

“Given the number of re-up opportunities, there is little room for new relationships for most LPs unless they were to cut existing relationships. In some cases, LPs are telling us… they do not even have a budget to support their existing managers at the same level they were in their previous funds – this means LPs would either have to reduce their commitment sizes or reduce the number of funds they support.”

 Download the full Q1 2022 fundraising data here