In the first quarter of 2016, 71 U.S. PE funds closed on a total of $51.8 billion in capital commitments. Of those 71 vehicles, 98% either hit or exceeded their target.
This proportion is unprecedented, even by the standards of the past two years, and is surely due in large part to timing. Looking at the array of funds that closed, the success rate makes more sense: Advent Global Private Equity VIII, Carlyle U.S. Equity Opportunity Fund II, Berkshire Fund IX, Thoma Bravo Discover Fund, L Catterton Growth Partners III, etc. These are all managed by prominent PE firms that have a robust track record, which doubtless affected the quarter’s results.
But that alone can’t explain why so many PE funds hit their targets. GPs have also been adapting their fundraising strategies to an intensely competitive dealmaking environment, gearing toward less expensive opportunities in select niches with potential for adding on and operational enhancements. Even though a considerable portion of the funds closed were in the billions of dollars and focused primarily on buyouts—the hallmark of traditional PE strategy—there were a fair number geared toward the lower reaches of the U.S. middle market, with firms like Pfingsten Partners closing vehicles with a specific focus toward niche manufacturing, distribution and business services companies.
That same increased specificity is also reflected on the fund investor side. Limited partners are seeking out fund managers that can provide increasingly customized options, whether fee discounts, longer lifecycles, separate accounts or co-investment opportunities, to name some of the more popular embellishments.
All in all, the ramp-up in bespoke LP agreements and niche buy-side strategies are doubtless behind the increase in fundraising success over the past two years and the staggering rate observed in 1Q. Even when the success rate slides as 2016 goes on, it’s testament to how the PE fundraising landscape continues to evolve.
Note: This column was previously published in The Lead Left.
This fundraising data came from PitchBook's 1Q 2016 U.S. PE Breakdown: click here to get your free copy today.