Private equity fundraising in the United States continues to rise from its depressed crisis-era levels, data released by PitchBook today show, but with a surprising focus on the road less-traveled—smaller PE funds.
The third quarter saw a strong jump in the number of funds raised over the same quarter last year, with 46 PE funds closing in 3Q 2013 compared to 29 in 3Q 2012. This marked increase in the number of PE funds closed points to a continued rebound in private equity fundraising, as highlighted in PitchBook’s 2H 2013 PE Fundraising and Capital Overhang report.
But despite the large increase in fund count, a closer look at the total capital raised indicates a potential shift in the trajectory and structure of this rebound. PE firms raised $23.5 billion in 3Q 2013, only a slight increase over the $20 billion raised in 3Q 2012.
Furthermore, average fund size was down significantly in 3Q 2013 from the same quarter last year, $714.6 million to $500 million, due in part to a lack of mega-fund ($5 billion+) closings in 3Q 2013. Comparatively, mega-funds accounted for more than 50% of total capital raised in the first half of 2013.
Looking at fundraising from another perspective, the median fund size also decreased significantly in the third quarter, down to $255 million from $391 million the same quarter a year before, indicating that in addition to a drop in the number of large PE fund closings, there was a significant increase on the lower end. This manifests itself in the data, which show 33 funds of $500 million or less closed in 3Q 2013, compared to only 17 in 3Q 2012, indicating a potential shift toward smaller funds in the PE fundraising landscape.
Time will tell if this trend toward smaller funds continues, but looking at the relative youth of the firms raising these types of funds provides some possible insight. Of the 46 PE funds raised in 3Q 2013, five were first-time funds, and four of those were sub-$500 million funds. Additionally, 29 of the 46 funds that closed in 3Q 2013 both raised less than $500 million and weren’t first-time funds—about half were either second funds, or funds that represented a shift in strategy for the GP in question, such as debut emerging-market funds or a first-time environmentally focused fund.
We will have a more in-depth post on this and other fundraising topics next week.