It's easy to see why GPs would want to trumpet speedy fundraisings. It sends a clear message to the market: unequivocal investor endorsement.
Funds that have closed in 2016 have on average spent 16 months on the road, according to PEI data. Only a small number of firms manage to amass their capital in much less time than that, says one placement agent.
Among this elite group is Ardian, which last week completed its fastest-ever fundraising, closing its sixth mid-market buyout fund on €4.5 billion after just four months.
Rapid fundraises are not the preserve of the mega-firms. In May, Canada's Ironbridge Equity Partners closed its third fund on its hard-cap of C$238 million ($185 million; €165 million) after a mere three months, and in August, Australia's Quadrant Private Equity closed its eighth fund, a venture capital and growth equity vehicle, on A$980 million ($746 million; €660 million) after less than two months on the road.
Of course, it's worth remembering that GPs are the ones who decide the launch date for a fund and when to start that fundraising clock.
“There are rules around who you can market to, depending on the type and quantum of fund you have, but there's no one rule that determines when a fundraising starts, so people interpret it differently,” says Eamon Devlin, managing partner at alternative asset law firm MJ Hudson.
“Some GPs deem the launch date to be when they issue their private placement memorandum, some when they send out the limited partner agreement to LPs.”
The really time-intensive element of the process is due diligence; specifically, investors ensuring they are happy with the terms in the LPA, and this can take up to eight weeks to negotiate, Devlin says. That’s why established fund managers can fundraise more efficiently – they have a set of documents ready and an existing investor base.
From a regulatory standpoint, marketing commences as soon as investors are able to subscribe. For example, in line with European regulations, the UK’s Financial Conduct Authority defines ‘marketing' as the offering of a product that an investor can sign up for and commit money to.
Strictly speaking, a fund is marketing when GPs hand LPs a subscription document and limited partner agreement detailing terms. LPs typically ask for these documents only after reviewing the PPM and completing due diligence on the fund, which usually means that in the weeks and months prior, plenty of ‘pre-marketing' can have already taken place.
“[Some] GPs would say fundraising of some description is never really over – once you have a final closing on a fund, you are almost immediately talking to the LPs about the next fund,” says Heather Stone, partner at international law firm Locke Lord. Other private equity lawyers reckon a fund’s launch date should really be when the PPM for the fund is issued; unlike, say, a chat over lunch with an investor, a PPM is a tangible piece of marketing.
For its part, Ardian “started the clock” on its Fund VI fundraising after it secured regulatory approval from France’s AMF to market it.
Until either the industry or the regulator decides on a single definition for a fund’s launch date, expect GPs to continue telling the world when they've raised a fund in double-quick time.
In the end, how meaningful are such reports? A fundraising that concludes in a matter of months still sends a strong message about LP demand. Even if the timeframe is a little grey at the edges, we will continue to be impressed.