Private equity raised worldwide rises to $66b in Q2 2011

Funds primarily focusing on the US have raised the most capital, with 54 funds raising a total of $40.7bn, says Preqin.

According to a release by Preqin, 120 private equity funds worldwide reached a final close in Q2 2011, raising an aggregate $66bn. This is an increase from the $61.6bn collected in Q1 2011. Preqin anticipates the latest quarterly figures improving slightly (10% - 20%) as more information becomes available.

In addition to the 120 funds holding a final close, there are encouraging signs of improving momentum in fundraising with a further 113 funds holding an interim close during the quarter, raising $24.5bn towards their overall targets.

The Facts:
• Fundraising by Region: Funds primarily focusing on the US have raised the most capital during Q2 2011, with 54 funds raising a total of $40.7bn. 41 funds focusing primarily on Asia and the Rest of World gathered a total of $15.5bn, while European fundraising continued to lag behind other regions as 25 funds with a primary focus on the region raised an aggregate $9.8bn

• Fundraising by Type: Buyout funds raised the most capital, with 21 funds raising an aggregate $15.3bn. This figure includes Montagu IV, which closed ahead of its EUR 2bn target on EUR 2.5bn. Nine secondaries funds raised $9bn; Lexington Partners’ Lexington Capital Partners VII contributed $7bn to that figure, having reached a final close the last day of the quarter.

18 real estate funds reached a final close this quarter raising an aggregate $11.2bn. Lone Star Funds accounted for almost half of the capital raised by such funds, closing Lone Star Real Estate Fund II on $5.5bn at the end of May 2011. 20 venture funds closed raising a total of $5.8bn, including Bessemer Venture Partners VIII– a $1.6bn stage-agnostic venture vehicle.

• Fundraising Momentum - Interim Closes: In addition to the 120 funds holding a final close, there were 113 funds which held an interim close during Q2 2011, raising a total of $24.5bn towards their overall targets. Although Europe raised less capital for final closes in Q2 2011 than the US, the two regions accrued similar amounts for interim closes, raising $10bn and $9.8bn respectively. The most significant interim close in Q2 2011 was the first close of GSO CapitalOpportunities und II, the mezzanine vehicle managed by Blackstone Group, holding a first closing on $1.5bn.

• Funds in Market: After the number and aggregate fundraising target of funds in market fell consistently during 2009 and for most of 2010, Q2 2011 sees a continuation of the rise in both the number and value of funds being raised – a sure sign of rising confidence among fund managers that conditions are starting to improve. There are currently 1,676 funds on the road seeking
$680bn worldwide.

• Time Taken to Close Funds: For funds closed in Q2 2011 the average time spent in market was 15 months, significantly more than the 10.6 months in 2005, but down from the average time taken of 20.4 months for funds closed in 2010.

• Looking Forwards: 64% of LPs participating in a Preqin survey in June stated that they had already made a commitment to private equity this year; this is an increase of 10 percentage points on the proportion of investors that made an investment in 2010. Only 6% of participants expect to reduce their allocation to the asset class in the coming 12 months, with 75% stating that they will
maintain their current level, and 19% will increase allocations.

• Longer-Term Prospects: 70% of investors anticipate maintaining their private equity allocations in the longer term, while 21% expect to increase their exposure to the asset class in the next three to five years.

“Recent quarters have seen record distributions from existing investments held by private equity investors – the result of firms starting to exit investments made in the boom years of 2005 – 2008. As a result, investors are becoming far more active in committing to new vehicles in order to maintain their allocations to the asset class. While this isn’t yet translating into huge increases in the number and value of funds closing, in the second half of the year we are expecting to see more vehicles achieving a final close as the pace of new investment gathers momentum.

While this is certainly encouraging news for those currently seeking capital, the sheer number of funds being raised (currently standing at 1,676) means that conditions will remain extremely competitive for the foreseeable future, with the balance of power remaining firmly with the LPs in negotiating commitments.

For fund managers to be successful, effective communication and positioning is vital. Alignment of interests remains a key demand of LPs in the current market, with appropriately positioned fund terms and conditions extremely important. Meaningful GP fund commitments are also being seen as increasingly advantageous.” Tim Friedman, Senior Manager and Preqin Spokesman