One-third of managing partners expect their next fund to be at least twice the size of its predecessor, according to research from Investec.
The investment bank’s GP Trends 2017/18 report found that an additional 38 percent of managing partners are looking to increase their fund size by more than 25 percent. Just 22.5 percent are expecting to keep their fund size the same.
“In our experience, we find that our team will have developed a specific expertise in a certain strategy, and a fund growth of this size [in the same strategy] would lead to questions about whether the proposed investment strategy is still consistent with the skill set and experience of the existing team,” Maggie Loo, partner at London-based Bridges Fund Management, said in the report.
“As LPs get larger and larger, they are investing larger sums – so their minimum cheque size is growing to a point that precludes small funds from flourishing. If this stifles innovation, the entire private equity industry will be worse off as a result.”
The possibility of larger fund sizes does not seem to preclude UK GPs from expecting a quick raise. Respondents there expect to spend on average just 12.8 months in market with their fundraise, well behind the 15 months and 16.4 months it is expected to take in North America and Mainland Europe respectively.