March 2014 Issue
The private equity (PE) industry enjoyed a productive and prosperous 2013, seeing an increase in fundraising as well as an improvement in the IPO market.
According to data from research and consultancy firm Preqin Ltd, PE fundraising globally reached $431bn in 2013, representing a 13 percent increase over 2012’s total of $311.7bn. The climb was led by significant growth in the levels of investment capital raised in developed economies.
The $431bn raised throughout 2013 was the highest amount of capital raised since the onset of the financial crisis. Preqin’s data suggests that the impressive growth last year was predicated on strong fundraising activity for those funds whose focus lies predominantly in North America and Europe. Conversely, funds whose focus lay in Asia and other regions actually witnessed a substantial decrease in fundraising levels during 2012.
Fifty-nine percent of investors saw Europe as providing the best investment opportunities for PE firms, according to Preqin. Fifty-four percent of limited partners (LPs) noted that the best investment prospects lay in North America. Twenty-two percent of LPs believed that Asia was the superior region for investment, while 11 percent felt the best opportunities lay outside of these three main regions.
“PE fundraising globally reached $431bn in 2013, representing a 13 percent increase over 2012’s total of $311.7bn.”
In 2013, the average PE fund raised $1.2bn, a healthy increase on the $740m raised in 2012 and up on 2008’s average of $1.1bn. However, the larger buyout funds enjoyed particularly high levels of success in 2013, accounting for more than half of all funds raised throughout the year. The ‘mega funds’ – those with more than $4.5bn in assets – raised $85bn of the $169bn committed to 145 buyout funds last year. This is the first time since the credit crisis of 2008 that mega funds accounted for half of all capital raised by firms to invest in buyouts. In 2012, of the $95bn raised, the mega funds accounted for $30bn or just 32 percent. In 2008, buyout funds raised $230m with mega funds responsible for $114bn, roughly half of the total amount raised. “The mega buyout funds are back in town,” said Nick Jelfs, a Preqin spokesman. “Many of those big managers are displaying really good performance in their previous funds, which started investing around the time of the crisis.” To that end, in early January Apollo Global Management LLC announced that it had completed its fundraising efforts for its latest flagship fund. The fund was oversubscribed, closing at $17.5bn – the most any such fund has been able to raise since the financial crisis took hold in 2008. The resurgence of buyout fundraising can be seen in the sheer size of the new Apollo fund. According to Preqin, the $17.5bn raised by the PE giant ranks fourth among the all time largest fund list. The largest is held by the Blackstone Group’s V fund, which closed in 2006 on $21.7bn.
The largest fund to close in the final quarter of 2013 was Carlyle Partner’s VI fund. Carlyle’s fund accounted for almost 60 percent of the total capital raised by North American focused funds in the quarter, raising a total of $13bn. CVC European Partners’ VI fund also raised capital commitments of $14bn, according to Preqin.
The impressive scale of the funds raised by Apollo, Carlyle and CVC all point to the nascent revival in global PE markets. Fundraising has not been an easy task for some time; indeed, the amount raised by funds in 2011 totalled just $77bn. Apollo itself had targeted just $12bn for fund VIII. Yet recent figures show that investors became increasingly confident about the market throughout 2013.
The depressed state of the M&A market also led to a notable improvement in the IPO market in 2013. Renewed interest in IPOs provided PE firms with a much needed exit avenue last year. In 2013 there were 70 private equity backed IPOs, compared to 45 in 2012. Moreover, global IPO activity increased 37 percent in 2013 to reach $160bn. European issuers represented 22 percent of the global IPO market, with 143 issues totalling $35bn, more than twice the level seen in 2012. US issued IPOs also rose 22 percent to $49bn last year, representing the strongest year for the region’s proceeds since 2000. In the Asia Pacific region, IPOs declined 1 percent to $39bn.
Evidently, for private equity firms 2013 was an encouraging year. Although the fundraising environment is still challenging for many funds, confidence seems to be returning across the landscape. It is likely that we will see a further fillip for the PE industry in the coming months when the mega funds look to deploy the billions that they have amassed. 2014 could prove to be a noteworthy year for the PE sector.
© Financier Worldwide
BY
Richard Summerfield