How will the global financial crisis affect private equity fundraising over the next 12 months?
Mounir Guen, founder and chief executive of London-based placement agent MVision, said:
“By June this year most fund allocations had been committed and if you’re not on the 2008 roster it means you have to wait for the 2009 allocation. But next year will be even tighter in terms of capital for large funds – they will really struggle to get commitments. If you’re a new fund or a first-time commitment for an LP, the bar is very high. So in the US, a lot of funds are not reaching their targets.
GPs must not surprise their LPs – they must be able to see a fundraising coming way down the horizon, a year to one-and-a-half years early if they want to hit big numbers, and they must be prepared to hang around a lot longer, maybe two to three years. That means investors can get comfortable, they can see how the portfolio is developing and be confident about committing. You build up three to five companies in the portfolio and you can bring a slew of investors in as they’re comfortable at that point.
Mid-market and smaller funds are easier to raise and emerging markets will see a fair amount of fundraising as they tend to be focused on growth rather than leverage. China is the most favoured location. Some LPs are now putting 15 to 20 percent of their allocations into new markets.
In summary, there is a lot going on. A lot of programmes are on hold and people are reviewing their exposures.”
Guen shared his perspective as part of the upcoming Fundraising Compendium in sister magazine Private Equity International.