European private equity mega-funds are on track for another record-breaking fundraising year after collecting more than €96 billion (roughly $107 billion) in 2023, a sign that there is still plenty of room to grow before becoming a more mature market like that of the US.
PE mega-funds—defined in PitchBook’s The Rise of European Megafunds: Part II as vehicles over €1 billion—collected €77.8 billion in the first half of 2024, already reaching 81% of the record set last year. Fund counts are also on the rise: 14 vehicles closed in H1 2024, compared to 20 for all of 2023.
Here’s a look at six charts that break down the trends setting mega-funds apart.
The median time between fundraising rounds for mega-funds from 2022 through H1 2024 is 3.3 years, versus 3.7 years for non-mega-funds.
This means there could be three new vehicles in a fund family before an initial fund liquidates, assuming an 8- to 10-year life cycle for private equity funds.
These extra-large vehicles have seen a significant reduction in fundraising timelines over the past decade as more LP capital has been attracted to the growing asset class.
Median step-ups for mega-funds saw three consecutive periods of increase before dropping to 1.6x in 2022-2024, when borrowing costs became higher and fundraising became tougher due to the end of the bull market and the shift in interest rate policy in 2022.
However, the figure is still higher than that of smaller funds, whose median step-ups have remained constant at 1.4x since 2016-2018.
Both mega-funds and non-mega-funds took longer to close in 2022-2024 as capital was less available in the market.
Mega-funds took a median of 15 months to close during that time, while non-mega-funds took 16 months.
Net cash flow for mega-funds turned negative in 2020. Except for 2019 and 2020, it has largely remained positive for smaller funds.
LPs for mega-funds faced higher contributions in the period as fundraising continued to grow since 2017, whereas fundraising for non-mega-funds largely stalled during that time.
Nearly 80% of the dry powder in mega-funds is held in vehicles under two years old. For smaller funds, only 63.6% of dry powder is held in these younger vehicles.
As mega-funds brace for another record year of fundraising and fund activity slows for smaller funds, the divergence in dry powder is likely to increase in the coming years.
When looking at long-dated horizon IRRs, mega-funds outperform non-mega-funds from five-year returns onward, and the outperformance becomes larger over a longer period of time.
However, the annualized quarterly returns—calculated as the aggregate percentage change in combined NAV for each group—of mega-funds stand at 8.86%, which is only marginally higher than non-mega-funds, which recorded 8.5% on an annualised basis.
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