It’s bigger and better for the private equity industry this year as H1 fundraising reached $264 billion, surpassing capital raised by funds holding a final close in any first half of the year since the financial crisis.
Pivotal to the sizeable aggregate capital raised by private equity firms, the first half saw the close of the largest-ever Europe-focused fund and the biggest-ever Asia fund. CVC Capital Partners VII – the largest fund closed in Q2 – raised $17.6 billion, while KKR Asian Fund III pulled in $9.3 billion in less than seven months. On the back of these fund closes, the proportion of aggregate capital raised for Asia-Pacific strategies increased from five percent in Q1 to 13 percent in Q2. Similarly, the amount of capital raised by Europe-focused vehicles has jumped from $37 billion in H1 2016 to $54 billion in H1 2017.
Funds are also continuing to grow in size, according to the PEI data. A total of 369 vehicles held a final close in the first half, with the average fund size growing to $715.49 million, almost $100 million larger than the average fund in 2016.
It remains to be seen whether this bumper fundraising period spells trouble ahead for the private equity industry. Some limited partners are concerned that larger vehicles and faster fundraising may be a sign of poor manager discipline, while others are spotting greater potential in direct investing, which avoids management fees and GP/LP disputes.
For now, the outlook is positive. Despite a decline in total capital targeted by funds in market on 1 July – $647 billion – compared with previous years, the number of funds in market has increased from 2,342 on 1 July 2016 to 2,464 funds this year. The number of managers has similarly increased from 1,866 to 1,913, showing that many GPs still see great potential in this growing market.
Although this may be indicative of a drop-off in average fund size, the number of managers closing mega-funds this year suggests that the average fund size will remain high.