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Record Fundraising Levels in Private Capital Markets Signals Confidence among Limited Partners

March 02, 2017

Record Fundraising Levels in Private Capital Markets Signals Confidence among Limited Partners

Private equity and venture capital continue to outperform public markets


SEATTLE — March 2, 2017 — Fundraising in private equity and venture capital reached record highs in 2016, signaling limited partners’ (LPs) growing confidence in the private capital markets, according to PitchBook’s 2016 Annual VC & PE Fundraising Report. Capital raised by PE firms grew 2.6% year-over-year (YoY) to $268.5 billion. Meanwhile, venture capitalists raised $51.3 billion in 2016, a 14.4% increase from the year prior. As a result of increased fundraising and slowed dealmaking activity in 2016, global dry powder reached record levels for both PE and VC, which recorded $754 billion and $121.4 billion, respectively. This combined $875.4 billion of dry powder ready to be deployed across private equity and venture capital will fuel dealmaking, as general partners (GPs) are forced to put capital to work.


“Due to their continual outperformance of the public markets, we saw private equity and venture capital firms have outstanding success on the fundraising trail in 2016.”  said PitchBook analyst Dylan Cox. “Meanwhile, many public pensions and sovereign wealth funds are struggling to meet their obligations. They’re now looking to PE and VC to make up the difference—particularly private equity, where net cash flows to LPs have been positive every year since 2011.”


PE Fundraising

Private equity fundraising hit a record high of $268.5 billion in 2016, marking the fourth consecutive year that PE fundraising surpassed $260 billion. These high marks are driven by large buyout funds like those raised by Advent International and TPG Capital, which garnered $13 billion and $10.5 billion respectively. This increase in commitments can be attributed  to private equity’s outperformance of public markets in recent years. At the same time, net positive cash flows for the last five years have given LPs plenty of capital to put back into the asset class.


While 2016 was a record year in terms of capital raised, the total number of PE funds closed was down, indicating that PE investors raised fewer, larger funds in 2016. Further illustrating this trend, median PE fund size reached $280.5 million up from $205.4 million last year. In another sign of strength for the industry, 87.6% of investors were able to hit their stated targets, a decade high.


VC Fundraising

The venture industry experienced a record amount of fundraising in 2016, with an aggregate $51.3 billion raised across 328 funds. LPs demonstrated a sustained, and in many instances increased, appetite for the venture asset class, pouring the most capital since the dot com era into new vehicles. This stemmed largely from the LP need to recycle the aggregate $120 billion in distributions received between 2014 and 2015, in conjunction with a rotation out of hedge fund strategies.


Larger funds also had success in the venture capital marketplace this year. In fact, 28 funds received commitments of upwards of $500 million, accounting for 45% of total capital raised. The $2.5 billion TCV IX fund was the largest venture vehicle closed, followed by the $1.6 billion Andreessen Horowitz Fund V. Notably, despite median fund size increasing 70% YoY to nearly $85 million, 86.1% of fund managers hit their targets during the year.


In addition, as LPs have continued to demonstrate an interest in gaining exposure to the unique verticals and geographies that emerging managers provide, first-time VC funds raised a total of $3.8 billion, the largest amount recorded since 2008. Examples include the $335 million Geodesic Capital I and the $420 million Eight Partners VC Fund I.


Additional findings in this report include:

  • Median and average fund size by PE fund type

  • Micro VC funds fell to a 10-year low

  • Select open funds


Download the full report here.




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