Kohlberg Kravis Roberts will get to test one of its oldest relationships later today when co-founder George Roberts goes before the Oregon Investment Council seeking a commitment to the firm's North American Fund XI.
The outcome of KKR's visit could be reflective of how fundraising will go across the wider private equity industry, as an estimated 1,500 funds prepare to come to market this year, leaving limited partners with a wealth of choices about where to place their money.
Oregon had already made clear it was “contemplating” slashing its commitment to KKR's next fund to reduce the pension's “single-manager concentration risk” to KKR. Oregon has been partnering with KKR since 1980, and has committed a total of roughly $6.2 billion to the firm.
KKR's target for the 11th fund is not clear. KKR declined to comment. The firm raised $17.6 billion for its last flagship fund in 2008, and Oregon provided $1.3 billion for the fund.
Fundraising in 2011, similar to the environment last year, could be a struggle for many firms as existing LPs are expected to cut smaller checks for re-ups. According to Coller Capital's Private Equity Barometer for winter 2010-2011, a majority of LPs surveyed have had no problem skipping re-ups with existing investors recently. In Europe, 91 percent of LPs surveyed had declined re-ups in the last 12 months, compared with 63 percent during the same time period last year.
We try and brace our clients … it will be a daunting task to raise the same amount.
“There's more LPs in the market, and the purse strings are loosened, [but that doesn't mean it will be] an easier fundraising [environment],” said Garth Troxell, a partner at advisor Altius Associates said at an industry conference this week.
LPs have become more discerning in their selection of private equity funds and with thousands of GPs looking for capital, investors will be even pickier in choosing their relationships. This will cause fundraising to take a lot longer than in the past, panelists at the conference, hosted by Dow Jones, said.
Fundraising, from the issuance of the private placement memorandum to the final fund close, took an average of about 9.5 months in 2004, said Thomas Beaudoin, partner at law firm WilmerHale. In 2010, the time between the publication of the PPM and final close was about 20 months, Beaudoin said.
Firms not willing to spend the time fundraising will have a hard time raising as much or more than the prior fund, he said.
“We try and brace our clients … it will be a daunting task to raise the same amount,” Beaudoin said. The other option is to cut the fund size, he said.
A commitment that is half to two-thirds of the prior commitment from existing LPs would be a success this year, he said.
Oregon last year slashed its re-up with Centerbridge Partners by $100 million for the firm's $3.75 billion second fund last year. The California State Teachers' Retirement System notably dialed back its re-up to The Blackstone Group's latest fund, when it committed $270 million, compared to its prior commitment to the firm of $1.7 billion.