PEI 300: The new world order

Private equity is a long-term business. Our annual ranking of the most significant managers of private equity funds has historically reflected this; the five-year time horizon we use to calculate each manager’s firepower means that shifts in the upper reaches of the league table have been gradual. Until now.

This year’s winner takes the crown for the first time since Private Equity International began ranking private equity firms in 2007 in what was then the PEI 50, and takes it in spectacular fashion, with a five-year fundraising total outstripping its closest rival by a mind-bending $25 billion.

Traditionally, the fundraising efforts of the world’s largest firms have moved broadly in lock-step. Over the course of the last 12 months, however, The Blackstone Group has eclipsed its peers. Its five-year private equity total of just shy of $60 billion is followed in second place by KKR’s $35.25 billion.

Those familiar with fundraising at Blackstone say its recipe for success has one main ingredient: consistent high performance.

“Their track record is strong across the board,” said a private equity advisor to large limited partners, pointing to “the quality of the product”.

Another gatekeeper praises the breadth and depth of its offering: “They have the platform to go to huge investors and say, ‘Just give us your money and we will invest it wherever the opportunities are.’”

The New York-based firm raised $94 billion across all strategies in 2015 alone, including $30 billion for private equity across several vehicles, including its colossal $18 billion Blackstone Capital Partners VII.

As Stephen Schwarzman, chairman and chief executive of Blackstone, put it in the firm’s fourth-quarter earnings conference call at the end of January: “Limited partners look to a franchise they trust, a safe pair of hands, one that has navigated these types of environments successfully like we have done for 30 years now.”

‘INNOVATION WITH SAFETY’

A simple look at returns can explain why LPs are enthralled with Blackstone funds and tend to allocate greater amounts of capital when capacity allows it. Blackstone’s private equity funds have returned high double digit net internal rates of return consistently over the years.

The established Blackstone brand has also allowed the firm to start new strategies when it spots investment opportunities and to successfully raise large scales of capital from around the world.

Schwarzman described the firm as having a culture of “innovation with safety”. “We continue to quickly launch and scale new products, leveraging our talent, knowledge and brand in order to take immediate advantage of market opportunity,” he said in January.

One of the best illustrations of this agility is the Tactical Opportunities platform, led by senior managing director David Blitzer, which launched three years ago. It had already raised $15 billion for the strategy by the end of 2015.

But Blackstone is not the only firm that has had an impressive year. For the first time since 2012 there is more than one European (or non-US) private equity firm in the top 10. Thanks to a stellar fundraising year, top 10 old-timer CVC Capital Partners is joined by Stockholm-based EQT Partners, which has climbed eight places to claim the 10th spot.

Even taking the gargantuan Blackstone out of the equation, the fundraising totals for this year’s top 10 are remarkable. In 2015’s ranking, 10th place Bain Capital had a five-year fundraising total of $14.6 billion; this year, 10th place EQT has a five-year total of $18.5 billion.

Of course, for firms to rise, some must fall. The biggest drop in the top 10 this year comes from TPG, which dropped from the number two spot to ninth as its five-year fundraising total tumbled from more than $30 billion to $20.7 billion. Reigning champion The Carlyle Group also slipped four places.

GROWTH GIANTS

Warburg Pincus, meanwhile, leapt from the ninth spot with $15.2 billion last year to third place with $28.6 billion, thanks to closing Warburg Pincus Private Equity XII above its $12 billion hard-cap in one of the largest single closings in private equity history. Advent International, in fourth place, has had a similarly meteoric rise following the April close of its $13 billion eighth fund.

One firm to watch for in next year’s ranking is Ardian, which has bounced back into the top 50, rising 38 places from 59 to 21. This does not include its latest $14 billion fund, which closed in April and brings its five-year secondaries fundraising total to more than $27.4 billion.

Blackstone’s unceremonious ousting of Carlyle should prove that no-one’s place in the upper echelons of the PEI 300 is safe. But with a $25 billion buffer between it and the competition, it’ll take one heck of a fundraising year to dethrone this firm.


HOW THE RANKINGS ARE DETERMINED:

The 2016 PEI 300 rankings are based on the amount of private equity direct investment capital a firm has raised between 1 January 2011 and 1 April 2016.

Definitions
Private equity:
For the purposes of the PEI 300, the definition of private equity is capital raised for a dedicated programme of investing directly into businesses. This includes equity capital for diversified private equity, buyouts, growth equity, venture capital, turnaround or control-oriented distressed investment capital.

Capital raised: This means capital definitively committed to a private equity direct investment programme. In the case of a fundraising, it means the fund has had a final or official interim close after 1 January 2011. We also count capital raised through other means, such as co-investment vehicles, deal-by-deal co-investment capital, publicly traded vehicles, recycled capital, and earmarked annual contributions from a sponsoring entity.

What does NOT count as private equity?
Funds of funds, secondaries, real estate, infrastructure, debt (including mezzanine), PIPEs and hedge funds.

NB. The PEI 300 is not a performance ranking, nor does it constitute investment recommendations.

For a full methodology, contact PEI research manager Daniel Humphrey Rodriguez (daniel.r@peimedia.com)