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PE Fundraising

Private equity mega-funds overwhelm LP funding abilities

A recent flurry of private equity mega-funds is limiting capital available to GPs, which could disrupt the lucrative status quo that PE firms have become accustomed to.

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A recent flurry of private equity mega-funds is limiting capital available to GPs, which could disrupt the lucrative status quo that PE firms have become accustomed to.

PE fundraising totals had a banner 2021 and have already been off to a strong start this year. But individual GPs are battling for limited resources, as myriad managers are currently raising capital—following a fast economic recovery post-pandemic coupled with unprecedented deal activity—in effect overwhelming traditional LP funding abilities, according to our latest US PE breakdown.

There could be several consequences to restricted LP capital, according to Jinny Choi, a private equity analyst at PitchBook.

“First, it could slow down and put a damper on the fast and smooth fundraising process GPs have been enjoying for the last two years. Fundraising efforts could be dragged out, or we could see a temporary ceiling on PE fundraising activity as LPs max out their ability to commit enormous amounts of capital,” Choi said. “The bottleneck in LP capital could encourage GPs to turn to other sources of capital such as insurance companies and the retail market.”

 


Just looking at the largest current mega-funds—vehicles seeking $5 billion or more— illustrates how crowded the field is. Before 2022, just seven US-based PE funds closed on funds sized $20 billion or larger. As of March 31, there are at least nine funds either seeking or already closed on the same amount this year alone.

The combined funding amount these vehicles are targeting—at least $225 billion—is more than two-thirds the total amount US PE firms raised in 2021.

This trend is expected to continue this year, as analysts anticipate record-setting fundraising from mega-funds in 2022.

“Large players are expected to meet their stunning targets for funds to be raised in 2022, including over $80 billion anticipated between The Carlyle Group, Apollo Global Management and Blackstone alone,” Choi said.

The tech sector has been especially attractive to investors, drawing in PE firms that seek to raise $20 billion-plus vehicles to take advantage of the frantic growth in the sector and relatively high performance.

Choi also mentioned that giant PE firms that have already established mega-sized funds are more easily able to raise more mega-funds when launching new strategies.

Featured image by Nuthawut Somsuk/Getty Images

  • ryan-prete-headshot.jpg
    Written by Ryan Prete
    Ryan Prete covers technology and private equity deal-making for PitchBook from the San Francisco Bay Area. He previously has been a tax policy reporter for Bloomberg News in Washington, and he covered cybersecurity-related legislation and policy for Inside Washington Publishers. He is a graduate of the University of California, Santa Barbara.
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