Q1 fundraising: a record start for growth equity

Funds focused on the strategy closed on almost $25bn in the first quarter of this year, the best such period for growth equity since at least 2008.

Growth equity strategies have enjoyed their best start to the year for fundraising since at least before the global financial crisis.

Firms collected $24.9 billion across 23 growth equity funds in the first quarter of 2019, the best first quarter for growth equity since PEI records began in 2008. Summit Partners raised $4.9 billion for its Growth Equity Fund X, the largest fund in this category and the fourth-biggest of any strategy that quarter.

Growth equity appears set to take off this year. Almost one-third of LPs who participated in PEI’s LP Perspectives 2019 survey said they plan to increase their target allocation to funds focused on the strategy over the next 12 months. Blackstone launched a growth equity platform in January and Warburg Pincus is seeking $13.75 billion fundraising for its Warburg Pincus Global Growth-E fund, according to PEI data.

Fast-growing companies are staying private for longer, adding to heightened demand for growth equity funds, Janet Brooks, London-based managing director at Monument Group, told Private Equity International. The time for companies to list is nine years on average, whereas it was three years in the previous tech boom, she said.

“There is a larger part of the value chain that can be captured by pre-IPO investors and that’s prompted the rise in fund size in long-term growth investors like Summit Partners and Accel.”

Newcomers into growth investing typically come from two sources: venture funds wanting to raise larger funds and buyout managers that have long shunned non-control, minority investments.

VC funds are getting more active in growth because they need to raise larger growth funds to be able to follow on investments they made on the venture stage, Brooks said. Big buyout managers are also evaluating non-control investments because they can potentially open up a big pool of dealflow that has not been available to them, she added.

Total private equity fundraising collected $91 billion across 97 funds in the first quarter. Buyout strategies collected $56.2 billion across 37 funds and 36 venture capital vehicles raised $5.9 billion.

Thoma Bravo’s $12.6 billion haul for Fund XIII was the largest close, followed by EQT’s $10.1 billion Infrastructure Fund IV and Genstar’s $7 billion Fund IX. Only three of the 10 largest funds were not strictly focused on North America. TPG Asia Fund VII closed on $4.6 billion and the pan-European Altor Equity Partners V collected $2.4 billion.

North American strategies accounted for 60 percent of all capital raised in the first quarter. Multi-regional and European funds took 18 percent and 15 percent of capital respectively, while Asian strategies collected just 7 percent.

This year is likely to see a raft of mega-raises; the 10 largest funds in market – by target – are seeking at least $126 billion between them. Blackstone has already amassed more than $22 billion for Blackstone Capital Partners VIII, which is likely to be the industry’s largest-ever buyout fund, and Advent International is seeking $16 billion for Fund IX.