Evercore: Q1 fundraising ‘dismal’

The first quarter of 2011 was one of the slowest periods for private equity fundraising in years, even as the time it takes to raise a fund has shrunk, according to Richard Anthony and Dana Pawlicki, of Evercore’s Private Funds Group.

Private equity fundraising in the first quarter of 2011 was “dismal”, showing some of the worst results since 2004, according to Pawlicki and Anthony, who spoke during a media event hosted by Evercore earlier this week. However, expectations are higher for the remainder of the year, as limited partners wait for firms to invest their undeployed capital before making new commitments.

Anthony, chief executive of Evercore’s Private Funds Group, said he observed “growing optimism” about the private equity sector from LPs, but added that he saw LPs becoming “a lot more cynical, a lot more jaded”, and less inclined to believe general partners’ pitches. To that end, Anthony said LPs were undertaking more due diligence on GPs and were becoming “incredibly granular” about the track records of GPs raising funds.

“What we observe is that these days is that it's not just about the track record. LPs want to be clear on who is the deal actually attributable to,” Anthony said, adding that LPs “want to understand are the people that did these deals still within this organisation”. He also noted that LPs have gone deeper into investments, including making more onsite visits to portfolio companies to ensure that GPs’ promises of “operational expertise” were warranted.

Pawlicki, a managing director at Evercore’s private funds group, said the current market was “incredibly crowded”, citing a survey estimating that about 50 percent of existing  private equity firms were going to be raise funds in 2011. Pawlicki said the sheer volume had left LPs feeling like “air traffic control landing planes on the runway”.

One major issue clogging up fundraising this year is the wall of undeployed capital from previous funds, according to Pawlicki.

“I think if you are an investor and you are looking at four funds and you can wait two more months to see how the next quarter's numbers look, they are going to do that,” Pawlicki said.  “I think that there will be a lot of subscriptions made toward the end of the year as a result”.

One “high point” in an otherwise disappointing fundraising period was that the average time taken to raise a fund decreased from about 24 months to 18 months, Pawlicki said.

Infrastructure: Limited number of global funds

In infrastructure, Anthony said he saw a competitive group competing for a limited number of assets, and said he expected  country-specific funds or funds with a “unique type of sourcing model” to be most successful.

Global funds, however, will face more challenges.

“I think you are going to end up having these niche funds that are going to be successful  and a limited number of global funds,” Anthony said. “I think unfortunately a lot of the first time ones will struggle to raise.”

Existing global funds were at an advantage, he said, given they would likely bid on a limited number of infrastructure assets and probably had a better chance of winning those assets than first-time fund managers.

He also said some GPs raising second funds “aren’t going to be forgiven” if their first fund struggled.

But Pawlicki was quick to point out that funds related to energy had seen a great deal of interest, particularly in relation to new opportunities for unregulated energy in the US.