Private equity faces 'saturation'
The global private equity fundraising market is reaching saturation point with funds taking longer to raise and few achieving their target amounts, according to the latest research.
London-based buyout research boutique Private Equity Intelligence said there are currently 1,478 funds on the road seeking an aggregate of $844bn (€544m) of commitments, about a 13% increase compared with the number of funds in the market in January this year at 1,304 funds expecting to raise $705bn.
The increased number of funds being raised has boosted competition resulting in an increase in the average time spent raising, said Preqin.
According to the figures, the average number of months spent fundraising for funds closed so far this year was 14.2 months. This compares with 9.5 months for those closed in 2004, representing a jump of 49.5%.
Tim Friedman, spokesman for Preqin, said: “With funds taking longer than ever to raise and with more funds hitting the road every day, the fundraising market is in serious danger of becoming completely saturated.”
Friedman said if the number of funds on the road did not stabilise in the near future it was likely private equity firms would be unable to reach their fundraising targets with potential investors already reaching their maximum allocations.
“In such a competitive market fund managers are going to have to be more focused in identifying the best targets and more patient than ever before if they are to successfully reach a final close at their targeted amount,” said Friedman.
Investor appetite for mega funds is keeping the fundraising market in a “healthy state” with record amounts of capital raised and on the road but the “actual number of funds achieving a final close has not been strong”, said Preqin.
French buyout house PAI Partners earlier this month missed its hard cap for its biggest fund and closed several months later than intended. The fund, double the size of its previous at €5.4bn ($8.4bn), originally had a target of €5.8bn and had been scaled back because of a difficult fundraising environment, according to investor sources.
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