Private equity firms should expect a to encounter difficult fundraising conditions this year, as limited partners trim down the number of GP relationships, shun first-time funds and back only the top tier of managers.
That was the message conveyed by speakers at this year’s EVCA Investors’ Forum, held last week in Geneva.
Post-recession years have historically produced the best private equity vintages, but some LPs do not expect this to hold true for this cycle. Joachim Høegh-Krohn, chief executive officer of Norwegian fund of funds Argentum Fondsinvesteringer, said his organisation was “cautious on 2011 and 2012 funds”. His caution was echoed by co-panellists, who agreed that high prices currently being paid for assets would translate into lower private equity returns.
David Plummer, private equity manager at the $20 billion New Zealand Superannuation Fund, joked that GPs looking for his capital should “leave out the post-recession chart” from their presentations.
First-time funds will have a very difficult time raising money, the panel agreed, and would only be likely to raise capital if they “fill a particular niche with no other access points”, said Plummer. An example of such a niche would be global agribusiness, he continued, where the pension had been unable to source an experienced team and may consider sponsoring a first-time offering “alongside like-minded investors”.
In answer to the question “What does it take to get your money?”, Steve Byrom, head of private equity at the $95 billion Australian Future Fund, said: “We are looking for managers who will be good stewards of our pension’s capital. It is black and white; you either have – and have had – that mindset or you do not,” he said. “We need to have the conviction that you can generate outsized alpha.”