Rubenstein’s take on the future as Carlyle tops PEI 300
PEI 300 generates better IRR than last year’s
All change at the top of the PEI 300
Private Equity International published its inaugural general partner ranking, the PEI 50, in 2007, aiming to create “a useful point of reference in a changing and expanding industry”.
The industry, and the ranking, have certainly changed since then. In 2009 we expanded to 300 firms, and today our research and analytics team applies the rigorous methodology to more than 500 firms globally to come up with the definitive ranking the industry has come to rely on.
A quick scan down the original PEI 50 list gives a clear picture of how different the private equity world was back then. Yes, Carlyle was at the top of the list, but at that time the firm had “no plans” to go public and a five-year fundraising total of $32.5 billion. Today, it’s quite a different beast.
A significant slice of those riding high in 2007 can no longer be found in the PEI 300 for various reasons, including Terra Firma Capital Partners, Candover and Doughty Hanson. Some, like Goldman Sachs, Providence Equity Partners and Charterhouse Capital Partners have slid down the ranking. But some, like Advent International and Silver Lake, have surged ahead.
Each annual list offers a snapshot of a particular point in time, with each of the challenges and hurdles the industry has faced over the last 12 years reflected in the ebbs and flows of the ranking. A useful reference point indeed.
About a fifth of the firms have charted a steady course through the years, perhaps none more so than KKR. In the original PEI 50 the firm ranked second, and it has never slipped below fourth, showing that operating multiple fund families within private equity helps to smooth the way. This year the firm comes in third just $500 million behind second-place Blackstone.
The private equity landscape has changed, if not drastically then certainly noticeably since 2007, thanks in large part to the global financial crisis. Some firms took hits during that period from which they were unable to recover. Others dramatically shifted the way they operate. One such firm is 3i Group, which was 13th on our 2007 list. The listed company had always made hefty contributions to its limited partnerships, but in 2013 shifted entirely away from raising third-party capital for private equity investments, instead relying wholly on its balance sheet. Its last third-party fund was the 2006-vintage €5 billion Eurofund V, and as such the firm no longer appears in the PEI 300 ranking.
The comeback kings
The last decade has been a rollercoaster for financial markets, and private equity has been no exception. Some firms have ridden that rollercoaster better than others. Thomas H Lee Partners was riding high in 2007 in 30th place with a five-year fundraising total of $7.5 billion. But after three consecutive years of climbing, in 2013 it plummeted out of the ranking as it took more time to come back to market with a successor to its $10.1 billion sixth fund. In 2015 it crept back in at 296th and has been climbing in leaps and bounds ever since, landing at 63rd this year.
The shrinking violets
To stay atop the PEI 300, it is not enough to just raise capital in a consistent way. This is evident in the handful of firms that have slipped down the ranking despite their fundraising totals staying steady. One such firm is Hellman & Friedman; debuting at 16 in 2007 with a five-year fundraising total of $12 billion, the following year the same total only granted the firm 25th place. This year it’s in at 29 with $10.9 billion.
It goes without saying that it’s much easier to slide down the PEI 300 than it is to climb up. But a small handful of firms have plotted determined ascents over the last decade, among them Advent International, Clayton, Dubilier & Rice and EQT Partners. From 21st place in 2007 with a five-year fundraising total of just over $10 billion, EQT has since launched several new product lines within private equity and snuck into the top 10 for the first time in 2016. It’s shot up to seventh place this year on the back of its €10.75 billion eighth flagship fundraise.
For around a quarter of firms in the original list, the first few years were their highpoint before sliding down through subsequent rankings. On the eve of the global financial crisis, Goldman Sachs raised one of the largest funds the private equity world had ever seen, the $20.3 billion GS Capital Partners VI, which included $9 billion contributed by the firm and its employees. It took almost a decade to come back with a follow-up buyout fund, the $7 billion West Street Capital Partners VII. In the intervening years a lot changed for Goldman and its banking peers, many of whom chose to spin out their private equity teams. The impact of the Volcker rule, part of the Dodd-Frank Act passed in 2010, can be seen in the decision not to name the fund after the parent bank and in the amount of capital Goldman itself was able to commit to the fund. From top of the list in 2010, Goldman now sits in 37th place.