“The words fundraising and fast are not often found together in private equity. In the aftermath of the financial crisis, even the successful firms took years to raise capital. However, in the past 18 months, the most popular firms have raised funds so quickly that investors are struggling to keep up.”
Simon Meads, in his Financial News article, points out that major PE firms are experiencing hectic fundraising activity. EQT and Blackstone are expected to hit the upper limit for their funds in just a few months – something that historically took a few years to accomplish. The time taken to raise funds is declining from an average of 18.1 months in 2013 to 15.8 months this year (the hottest are moving much faster).
“The phenomenon is the result of three factors. Distributions are flooding back from previous deals–meaning investors are racing to keep up with private equity allocation targets–while confidence about the long-term economic outlook is improving. But perhaps most critically, investors are more certain today about the managers they like and are concentrating their commitments with a select few. As a result, the popular funds are oversubscribed.”
Most observers agree that PE investors will continue committing larger sums of money to a smaller number of bigger, better known firms.
Does that mean that fund managers outside the top tier will be left behind?
The Navatar View:
Money is flooding into the asset class and investors are under pressure to do all the due diligence in a compressed timeframe. Despite their preference for bigger funds, investors may not have a choice if they do not stay ahead of the curve and act fast.
Which opens up a huge opportunity for funds outside the top tier. To tap this opportunity, however, the second tier funds must lead, not lag their peers, when it comes to in staying in front of investors. They need to be the best in class, in managing investor expectations and be on the right side of their LP’s regulatory framework very early into the fundraising cycle.
Smaller funds have an inherent advantage over larger funds. They are nimbler – they aren’t stuck with red tape or archaic tools. They have the flexibility to utilize state-of-the-art technology, such as Navatar Investor, to build the next generation fundraising machine.
We will have more statistics on their performance, in the next few months. Stay tuned.