Europe surpasses the US in PE fundraising in 2018

Private equity fundraising kicked into overdrive last year, reaching heights unseen in the past decade. And while this year is experiencing a slowdown in terms of overall capital raised, 2018 is shaping up to be notable for a whole different reason.

It isn’t the amount that is raising eyebrows this year. It’s where the cash is going.

Three of the five biggest buyout funds to close so far this year are based in Europe, per the PitchBook Platform, as well as four of the top seven. By contrast, just two European buyout vehicles ranked among the world’s 10 largest during 2017.

This underscores a seismic shift in the flow of PE money towards Europe during the first three months of the year. Last year, European funds were responsible for less than 25% of all buyout fundraising, while the US raked in nearly 65% of new capital. So far in 2018, Europe’s share has risen to nearly 50% while the US languishes with less than 40%.

That shift in percentages, though, owes as much to a sharp decline in fund value in the US as it does to a spike in Europe. After raising $59.3 billion across 65 funds in 2016 and $72.2 billion across 76 funds in 2017, firms in Europe are on pace to collect a whopping $110.1 billion across a mere 38 vehicles during 2018. In the US, meanwhile, investors are on pace to raise $87.3 billion in buyout funds this year, a decline of more than 50% from last year’s total of $186 billion.

And expecting the swing to continue for the whole year is presumptive, as several major funds in other geographies are in the works. Buyout giant The Carlyle Group is reportedly raising an $18.5 billion US vehicle, for example, and Carlyle and Blackstone are also planning major new funds in Asia, a region that’s experiencing its own fundraising boom. But it’s still a fact that more and more capital is flowing into buyout funds based in Europe.

The increase in average vehicle size on the continent is a sign that the bifurcation of US fund sizes outlined in our 1Q 2018 US PE Breakdown has hit the continent. EQT‘s €10.75 billion Fund VIII is the largest fund closed so far this year, while CVC Capital Partners closed a €16 billion vehicle in 2017.

Before EQT reached the bar in February, CVC was the only European firm to collect an 11-figure fund in the past decade ( Apax Partners did it in 2007), having raised three such vehicles in that span. The return of mega-funds to Europe highlights a growing need for private market investors to find yield, as interest rates persist at historic lows.

But that’s happening everywhere. What in particular is pushing Europe’s fundraising frenzy?

One reason could be increasing interest in the continent from international PE firms, who bring with them a global investor base not usually associated with the continent. KKR, for instance, has raised four Europe-focused funds so far and is currently seeking up to €5 billion for its next effort, per a Financial Times report from last October. Sometimes, a rising tide lifts all boats. It’s not a stretch to say that when a firm like KKR shows interest in a geography, larger LP cheques are likely to follow.

Another reason for the influx of capital could be an increase in targets, as existing managers across the continent draw near retirement and face questions of succession. In Germany alone, more than 840,000 small and medium-sized companies will be looking for new leadership in the next five years, according to a recent survey by KfW, a trend that could create opportunities for PE firms to provide eager-to-sell founders with swift exits.

There are surely other factors as well. But the end result is clear: It’s a good time to raise a billion-dollar buyout fund in Europe.