Allen Wagner April 04, 2014
Private equity fundraising continued the brisk pace set throughout 2013, as 74 funds closed on $39 billion in commitments in 1Q 2014, data from PitchBook’s upcoming 2Q 2014 U.S. PE Breakdown show.
Last year was the best for PE fundraising since 2008, with healthy gains from 2012 in just about every fund size. But if the first quarter is any indication, 2014 could be another banner year for fundraising in private equity.
First off, PE funds had no problem hitting their targets in the first quarter, when 95% were able to reach their fundraising goal. This is a continuation of an upward trend seen since 2009, when only 50% of PE funds hit their targets. It’s unclear whether such levels are sustainable throughout 2014, but it’s worth noting that 2013 was private equity fundraising’s best year in the last decade when measuring whether vehicles hit their target or not. This likely reflects a growing pool of LP money allocated to private equity making it easier for funds to hit their targets, as well as increasing confidence among LPs in the PE asset class, particularly as firms improved returns following the financial crisis. A recent surge of micro-funds with less than $100 million in commitments may also be playing a part, as it’s often easier to hit smaller targets than funds searching for more than $1 billion.
The fact that PE firms in 1Q 2014 closed funds across the fund-size spectrum and at a similar pace to the latter half of 2013 also bodes well for the remainder of the year. Micro-funds led the way, comprising 45% of the vehicles that closed in 1Q 2014. But other size buckets also featured prominently in first quarter, with at least 10 funds closing in both the $100 million to $250 million and $1 billion to $5 billion fund-size ranges.
The only difference in 2014 could be less capital raised compared to 2013 as fewer mega-funds ($5 billion or greater) are expected to close. Only one such fund—the $6.25 billion Clayton Dubilier & Rice Fund IX—closed in 1Q 2014, compared to four in 4Q 2013, which included massive closes for the $18.4 billion Apollo Investment Fund VIII, the $13 billion Carlyle Partners VI and the $9 billion KKR North America Fund XI. This lack of mega-funds in 2014 shouldn’t be concerning, particularly since the capital overhang remains high and deal-making should continue at its brisk pace.
To find out more about deal-making trends, exits and investment multiples from 1Q 2014, be sure to read PitchBook’s 2Q 2014 U.S. PE Breakdown when it publishes Wednesday, April 9. Click here to access PitchBook’s full library of reports.