Fewer funds gobble up LP capital as YTD fundraising remains strong

The number of funds that have closed so far in 2020 is down 50% year-on-year while the dollar value of capital raised remains steady, PEI data show.

Fundraising in the first nine months of the year matched levels seen during quarters one to three in both 2018 and 2016, as the pandemic pushed investors to focus on re-ups and established managers.

Total fundraising in the year through the end of September reached $348.5 billion, a 10 percent decrease on the $388.3 billion raised during the same period last year, according to preliminary Private Equity International data.

A notable difference between 2020 and 2019 has been the collapse in the number of funds closing. Just 583 vehicles held final closes in the first nine months of this year, a drop from the 1,185 recorded throughout 2019 and even further down on the 1,226 recorded in 2017, the highest figure recorded since 2015.

The amount of capital raised and the number of funds closed also dropped quarter-on-quarter, by 41 percent and 27 percent respectively.

Four European-headquartered managers raised the largest funds in the third quarter, gathering about $40 billion between them, according to PEI data.

CVC Capital Partners raised the largest fund in Q3 as well as the largest thus far this year, gathering €22 billion for its latest flagship in July.

In late September, Nordic Capital collected €6.1 billion for Nordic Capital X, thereby surpassing its hard-cap of €5.75 billion. Fundraising was completed in less than six months and conducted without any face-to-face meetings.

In July, UK firm Vitruvian Partners gathered €4 billion for its fourth buyout fund, Vitruvian Investment Partnership IV, less than three months after launching the vehicle. Ardian raised €2 billion for its latest expansion fund, Ardian Expansion Fund V, in September.

LPs’ appetite for mega-funds amid the coronavirus uncertainty is likely to continue, according to Raelan Lambert, global head of alternatives for global wealth at consultancy Mercer.

“Limited partners that have been through prior crises will continue to commit to private assets and re-ups, especially to large and established managers,” Lambert told PEI. “Where you will likely see challenges are in niche and newer teams that have just spun off, given LPs’ inability to conduct onsite due diligence due to covid-19.”

Jennifer Choi, managing director of industry affairs for the Institutional Limited Partners Association, told an industry conference last month that investors need to be careful about favouring familiarity among GPs in times of crisis as they could miss out on opportunities to deploy capital.

Private equity is bracing itself for an active end of the year, with funds in market targeting $774 billion as of 1 October. Nearly half or $356 billion of the total capital raising target is focused on North America, $107.9 billion on Asia-Pacific and $77.1 billion on Europe.

The funds that are expected to hold final closes before the year-end include EQT IX, which is targeting €14.75 billion; Silver Lake Partners VI, which has collected more than $18.27 billion as of August and which has yet to hold a final close; and Clayton, Dubilier & Rice XI, which had raised $12 billion as of September against a $13 billion target.