Looking back: North America in 2017

The North American market was dominated by big fundraises and soaring asset prices.

It’s been a strong fundraising year for private equity, and it should come as no surprise that North America – still the largest private equity market by some distance – led the way.

More than $182 billion has been raised to invest in North America so far this year, compared with $170 billion in 2016 and $150 billion in 2015, according to PEI data.

“It has been a very, very favourable market for general partners raising funds. The average time to close has come well down,” said Brian Gildea, managing director in the co-investment team at asset manager Hamilton Lane.

“Managers that have done well with their prior funds and have proven track records have been able to fundraise on that basis.”


Data from EY show the average time private equity buyout funds are on the road has been going down since 2013.

Of the funds reviewed by Hamilton Lane in the 2016-17 period, 72 percent were oversubscribed and 45 percent held “one-and-done” final closes, compared with 50 percent and 20 percent respectively in 2013-14.

In the first half of the year valuations in US private equity transactions as a multiple of EBITDA hit new highs at 13.7x, according to a report from valuation firm Murray Devine. The average debt multiple hit 7.2x EBITDA, a full turn and a half above 2016’s average and on pace to top any other year over the past 10.

Elevated valuations are affecting deal activity; US private equity activity is on pace to decline by almost 10 percent this year, according to PitchBook. It should come as no surprise that North American investors responding to PEI’s annual LP Perspectives 2018 Survey cited extreme market valuations as their number one concern, closely followed by the increasing availability of leverage in alternative investment markets.

Andrew Olinick, co-head of 3i Group’s North America private equity team and the global head of business and technology services, said that with assets “priced to perfection”, maintaining discipline in competitive auction processes is key.

“Given high valuations, we are seeing an increasing number of auctions that do not complete,” he said, adding that this can present opportunities.

Despite concerns that too much dry powder and high purchase prices will drive down returns – 39 percent of North American LPs are less confident about returns in the coming 12 months, according to our Perspectives survey – private equity remains popular with investors, which has made 2017 a good year for first-time managers.

“Due to the relatively strong performance of many first-time fund managers, institutional investors, particularly those with increased private equity allocations, seem to have taken greater interest, a trend that will likely continue into 2018,” said Shukie Grossman, co-chair of the investment funds practice group at Gibson Dunn.

While more managers equals more choice for investors, this does not come without its challenges. For Hamilton Lane, 2017 is on track to be a record year for the number of private placement memoranda received at around 800. Combined with faster fundraisings, this can make it difficult for LPs to keep up, said Gildea.

“It’s putting a lot of pressure on LPs to be able to make those timely decisions to commit to the hardest-to-access managers,” he said.

“All investors like having choice, but it also means more implications on performance. If you choose to go into one strategy over another, you’re going to have a different portfolio outcome”.