A more challenging fundraising environment for private markets is putting an end to massive jumps in fund size, according to a survey by affiliate title Private Equity International.
The Private Fund Leaders Survey 2023, which compiled responses from 101 senior buyout, growth, private debt, venture capital, real estate and infrastructure executives globally over the summer, found that only 56 percent say their current fund is larger than the predecessor, down from 75 percent in 2022 and 74 percent in 2021.
Nearly one-third (30 percent) say their fund is the same size as its predecessor, compared with only 1 percent in 2022 and 3 percent in 2021.
What’s more, one-fifth of respondents are not fundraising and “have no plans to start raising this year” – up by 7 percentage points from last year. Only 60 percent said they were in the market, compared with 68 percent last year.
A range of private equity firms, from large-cap players Blackstone and TPG, to pan-European firms including the likes of Astorg, either reduced their fundraising targets or delayed or extended fundraising over the past 12-18 months.
Fundraising slid significantly in the six months to end-June to $315.5 billion, down $80 billion from the previous period in 2022, per PEI’s H1 2023 fundraising report (registration required). By number of funds, it fell dramatically to 508 vehicles, 466 fewer than in H1 2022.
Fund commitments are harder to secure because LPs are becoming more selective, Aude Pouradier Duteil, a principal at Capstone Partners, told PEI.
“If you are an LP, you would be in a team that on average has not grown for the last 10 years,” she said. “Yet you have to underwrite primary investments, as well as secondaries and co-investments. You have lots of re-ups coming, but other fundraisings have lagged, so you have many things on your desk to choose from. Of course, you can be picky.”
More than half (55 percent) of respondents expect appetites for emerging managers to decrease this year, compared with the past 12 months.
The denominator effect has had a particularly severe impact on North American LPs over the past 18 months due to their hearty appetites and strict target allocations. Though LPs from North America (56 percent) and Western Europe (26 percent) at present account for a large chunk of GPs’ investor bases, firms expect their proportion of LP capital from the Middle East to double over the next five years.