NYC PE chief on why sluggish fundraising is good for the industry

Eneasz Kadziela is the deputy CIO and head of private equity with New York City’s Bureau of Asset Management, which manages investments for the city’s five retirement systems.

Appointed head of private equity in September 2021, he today oversees the organization’s $23.7 billion in private equity assets. NYC’s Bureau of Asset Management manages $249.8 billion in total assets.

In an interview with affiliate title Buyouts, Kadziela discusses the current downturn in private equity fundraising and why it is “a good thing for our industry.”

Fundraising has slowed since 2022. Do you think this is the new normal or will the market revert to its former fast pace?

Yes, fundraising timelines have been materially extended and it has become more difficult for GPs to raise capital, with the balance of power shifting in favor of LPs. I don’t see this reverting anytime soon.

LPs provide almost all the capital for funds and therefore LPs ultimately determine how much and how quickly funds can be raised. This tenet has not been respected in the last few years. If LPs are not there to provide capital, GPs need to slow down their pace of deployment and potentially pass on more deals.

This is a healthy development because it raises the bar for the deals that get done. The best fund managers, with strong and consistent long-term track records, are taking longer to raise funds than they have historically. Everyone else is having an even harder time. We are seeing a significant increase in fundraising extension requests and fund targets being missed.

I think that is a good thing for our industry, as fund sizes grew too quickly during the covid and post-covid era and many managers threw capital deployment discipline out the window.

How has this changed your strategy?

We are passing on more funds than we have historically and are being forced to rank our re-up opportunities, with difficult decisions being made about which relationships we will keep.

We are also being approached for the first time by top-tier managers who are not able to reach their targets with their existing investors. We are using this opportunity to upgrade our manager roster.

Has the slower pace impacted fund terms?

Absolutely. We are using this environment to push for legal terms we were unable to secure in prior fundraises and to secure increased co-investment opportunities.

Are there any lessons you’ve learned over the past few months?

As an LP, don’t be afraid to push for the best possible deal you can get.

Going forward, what factors might trigger slower or improved fundraising trends?

For fundraising to slow further would likely require an even greater deviation between public market and private market valuations, thereby worsening the denominator effect and increasing the overallocation to the asset class, which is a low likelihood in my opinion.

At the same time, LPs range from being slightly to heavily overallocated, so it may take a few years for fundraising to significantly improve.

Additionally, with higher absolute interest rates and a more difficult financing environment for deals, we are likely to see slower overall activity from the private equity industry than we have in the past few years. It’s hard to see how we can get back to the fundraising and dealmaking frenzy of the post-covid era anytime soon.