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For all the talk of macroeconomic uncertainty and LP capacity constraints last year, private equity fundraising proved fairly robust.
The amount of capital raised last year fell by more than $100 billion to around $727.6 billion, from a record $829.8 billion the prior year. That figure, however, still exceeds the fundraising totals of 2017, 2018 and 2020.
This is despite many LPs having to slash ticket sizes or decline re-up opportunities due to the denominator effect, which left some institutions bumping up against allocation limits. Interest rate hikes and inflation also prompted LPs to reassess the role of private equity in their portfolios.
These circumstances meant a smaller number of vehicles were able to reach final close. The number of funds closed last year fell by one third to 1,520 – the lowest total since 2016.
Fundraising last year was barbell-shaped, according to Matthew Swain, global chief executive at placement agent and advisory firm Triago. Investors backed recognised brand-name GPs on the one hand and committed capital to lower mid-market spin-outs where they could underwrite a tangible track record on the other hand, Swain said.
“You have LPs that maybe were writing a $50 million cheque to an upper middle market fund – now they’re going to a middle market or lower middle market [fund] to blend down their fees or take advantage of the slower fundraising market.”
With war on the continent last year, North American funds accounted for a record share of global fundraising, at 46 percent. European funds, meanwhile, fell to 8 percent – the lowest proportion since 2012.
According to Swain, the abundance of registered investment advisers (RIA) and aggregators of capital in the US, compared with Europe, partly explains the difference last year.
“It’s attractive for them because they can generate potentially better returns, not to mention lock up capital of their underlying [individual clients],” Swain said. Investors such as those in the mass affluent category “haven’t necessarily had access to private equity”, and more RIAs and aggregators are figuring out how to tap that capital, especially within the US, he added.
“You’re seeing a lot more capital come from those channels,” Swain said.
Check out our interactive fundraising report above for the other trends and highlights that shaped fundraising activity in 2022.
Download the report as a PDF HERE and download the data HERE.