Private equity fundraising was a tale of two markets in 2012, with only a small minority of GPs able to reach their targets quickly (and seemingly with ease), according to Bain & Company research.
Every year the consulting firm asks LPs and GPs about their experiences as part of its global private equity report.
“The vast majority of private equity firms were forced to work harder than ever to achieve their goals,” the report said.
The majority of GPs now take longer than a year to complete fundraising, said Carl de Brito, who co-chairs law firm Dechert’s fund formation practice in New York.
“Many fund sponsors may need 16 months to reach their target, or even longer,” said a second fund formation lawyer. “Prior to the financial crisis over a year could be considered unusual.”
Three criteria separated the fund managers that found themselves on the fast track from those who found it hard to get up to speed, said Bain in its report. Unsurprisingly past performance was a top priority for LPs. Team stability and the ability to deliver strong cash-on-cash returns were the other two criteria.
Speaking about a GP’s ability to return cash to investors, one LP cited in the study commented that a fund manager “can only blame the market so much for not getting stuff out the door”.
On track record, the study noted that young firms are not at a disadvantage if run by seasoned dealmakers who had already proven their capabilities. On backing new firms, Bain said investors found appeal in GPs who exhibited a “differentiated strategy and [had] the right ‘fire in the belly’ to make it work”.
Fund managers may experience a more friendly run on the fundraising trail in 2013. Earlier this year, PEM reported that two-thirds of LPs plan to reconsider their allocation to private equity in the next 12 months, 95 percent of which plan to increase their allocation, according to a LP survey run by Duff & Phelps.
The financial advisory and investment banking firm quizzed 100 LPs operating in Western Europe and North America.