Fundraising fast and slow

The contrasting experiences of Advent and TPG tell of a continued bifurcation of the fundraising market.

Ever since the latest financial crisis, the private equity market has been characterised by the ‘haves’ and the ‘have nots’: those firms that have so much demand they could have raised their fund twice over, and those that have an arduous uphill fundraising battle.

The most recent fund falling in the first category is the latest from Advent International, which announced this week it had closed Advent International GPE VIII on $13 billion above its $12 billion target after only six months of fundraising.

Advent’s previous three funds have performed strongly, offering high net internal rate of returns to its investors. Advent International GPE V, closed in 2005, has posted a net 43.1 percent IRR as of 30 June, according to data from the California Public Employees’ Retirement System.

Other firms in the same category as Advent include TA Associates, which raised a $5 billion fund, TA Associates XII, in just a few months last year; and Leonard Green, which is about to join that highly-coveted group as the firm is soon to close Green Equity Investors VII on nearly $10 billion after less than six months in the market, according to a source familiar with the fundraising.

TA Associates declined to comment on its fundraising efforts. Leonard Green didn’t respond to a request for comment.

These fundraising tales contrast starkly with TPG Capital’s experience; the firm has finally closed its latest fund after more than two years of fundraising.

The firm began raising TPG Partners VII in August 2014 and held a first close a year ago on $6.5 billion. It held a final close on $10 billion this month, according to sources familiar with the matter. The fund will include a $2 billion bridge fund TPG raised in the meantime. TPG’s previous funds have struggled; TPG Partners V, raised in 2006, has a net IRR of just 4.2 percent, according to CalPERS.

There is a long list of ingredients that make for a swift and successful fundraising. One of these is effective pre-marketing to speed up the process once the private placement memorandum has been issued. Another is having all the right answers to LP questions on terms, strategy and succession planning.

But in the end there is one ingredient that trumps all others: performance. “If you have phenomenal returns, you’ll get it done quickly. If you have to do some explaining, it will take longer,” one fund formation lawyer recently put it.

Watch out for our April edition, due to be published next week, in which we explore all the above issues and more through the auspices of Capital Pursuit! PEI’s board game that put the fun back in fundraising.