Fundraising in 2022: ‘Challenging with an element of FOMO’

Fundraising will take longer next year and the majority of capital will be allocated to safety, noted panellists at Private Equity International's Women in Private Markets Summit on Wednesday.

Fundraising will become even more challenging in 2022 and GPs may succumb to a fear of missing out, a panel has heard.

“Fifteen is the tally of managers that want to raise at least $15 billion in 2022 – and some of that might be even north of $20 billion or close to the $30 billion mark,” said Carolin Blank, managing director at Hamilton Lane, at Private Equity International‘s Women in Private Markets Summit on Wednesday.

“If those 15 managers only raise $15 billion, we will already be at 55 percent of all buyout fundraising in 2020,” she added.

Blank noted that this affects the contribution pacing – money put on the ground – and distributions, adding that her firm had seen “record-breaking” distributions in 2021. These totalled $900 billion in the 12 months ending 30 September, and would likely push higher by the end of the fourth quarter.

With the onslaught of new capital being raised, fundraising would also take longer, she added.

Teia Merring, investment director for private equity at Universities Superannuation Scheme, said the industry is now, for the first time in a long time, seeing a numerator effect where LPs are overallocated to PE.

“We just don’t have the capital that all our managers want to invest, so we have to be really selective… Double down on managers we committed to before.”

“It’s going to be a real tough time for new managers to raise capital in this market because the majority of the capital will be allocated to safety,” Merring said.

Tricia Ward, head of private credit at Redington, noted that investors are concerned about the quality of assets being bought at the current speed of deployment.

“If the managers [have] increased their fund size from $10 billion to $15 billion or $25 billion, how are they still executing on their original strategy? What kind of style drift is there? Are they overpaying for the deals available in the market, or are they compromising on the covenants in their contracts?”

She also highlighted the importance of “getting down to the diligence, and understanding how GPs make investments and why”.

What is in short supply, however, is the number of LPs conducting diligence on managers, said Sunaina Sinha, global head of private capital advisory at Raymond James.

“There’s only so much human processing power at these LPs, and that constraint has eased a tiny bit, but [it’s] nowhere near the amount needed to look at all of these new rich folks that are coming across their desks,” Sinha said.

Fundraising in the first nine months of the year reached $535 billion, according to PEI’s third-quarter fundraising report. A total of 3,298 funds in the market were seeking some $797 billion between them as of the end of September.