Private capital fundraising target rises to $946bn

March 2016 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

Private capital fundraising has been on the increase for a number of years. 2015 was the fifth consecutive year of growth in total investments raised for private capital funds, which include private equity, debt, real estate, infrastructure and natural resources funds. Given the strength of the growth recorded in recent years, the fundraising goal for 2016 has been set at $946bn, according to a new report from Preqin. This total eclipses the previous record goal, set in 2009.

In total, 1061 funds closed in 2015, raising a combined $550bn in investor commitments, according to Preqin. However, the final figure is expected to exceed 2014’s $590bn once all the data becomes available. If 2015 surpasses the previous year’s record, it would represent the fifth consecutive year in which aggregate private capital fundraising had increased. Furthermore, 2015 was the third consecutive year in which fundraising topped half a trillion dollars.

“The private capital industry has continued its strong fundraising activity in 2015, and looks set to match or exceed the aggregate capital raised in 2014. This would mark the fifth year of growth, as the industry continues the expansion seen in the period following the Global Financial Crisis”, said Mark O’Hare, Preqin’s chief executive. “Despite fewer funds closing in 2015 than in previous years, the fundraising market has become more competitive over the course of the year, with a record number of funds seeking capital commitments. The challenge for investors this year will be finding the right investment opportunity in a crowded marketplace.”

Despite the general uptick, global private equity fundraising actually slowed last year, decreasing for the first time in five years, according to Preqin. 2015 saw 687 funds raise a combined $287bn – a significant decline from $339bn in 2014. This coincided with a considerable build up of dry powder. The level of dry powder recorded in 2015 reached $752bn, up from $695bn at the end of the previous year, and $565bn back in 2012. 2015 was the third consecutive year in which an annual increase in dry powder levels has been recorded. PE firms are struggling to effectively deploy their capital in an increasingly competitive and liquid deal market.

“2015 has presented a slower-paced private equity fundraising market, as firms struggled to maintain the level of new investor commitments from 2014. Moreover, record levels of dry powder suggest that fund managers are finding it increasingly challenging to effectively deploy capital into attractive opportunities,” said Christopher Elvin, Preqin’s head of private equity products. “Fundraising looks set to remain healthy going into 2016, with both the number of funds on the road and their total capital targets approaching record levels. However, fund managers may find investor appetite starting to wane if their capital does not start being put to work in the coming year.”

Regardless of this drop, however, the global fund raising environment remains healthy, most notably in developed, Western economies. Unsurprisingly, North America was the driving force behind fundraising in 2015, as funds focused on the region made up 60 percent of total PE commitments, amounting to $168bn. Looking to the rest of the year, it is likely that North American focused funds will continue to set the global pace.

Richard Summerfield