Private equity funds backed off from buying companies as the coronavirus pandemic shut down economies around the world, and investors likewise stopped allocating.
Between April and June, data firm Preqin recorded 888 buyout deals globally worth a total of $61.3 billion — a sharp drop-off from the first quarter, when buyout funds made 1,321 deals valued at $95 billion.
Not a single deal crossed $10 billion, Preqin said.
The decline in deal flow was sharpest in North America and Europe, which together had 744 buyouts — down from 1,166 in the first quarter. In dollar terms, European deals “virtually disappeared,” Preqin said, falling from $37 billion in the first quarter to $6.8 billion over the last three months.
This slowdown was echoed in private equity fundraising, with just 225 funds closing — the lowest number in the five-and-half-year period Preqin analyzed. The data firm also found that private equity funds that closed in the first half of 2020 took longer to reach their fundraising targets, with just 39 percent reaching their goal within 12 months, compared to 52 percent of funds that closed in 2019.
Other private asset classes, like infrastructure and natural resources, also struggled to raise capital during the second quarter, according to Preqin data.
There was one bright spot, however: private debt.
Fundraising picked up over the last three months, with 49 funds closing, compared to 36 fund closes in the first quarter. Altogether, these vehicles gathered $33.6 billion, a 53 percent increase from the first three months of the year.
While private debt asset raising was still down compared to 2019, Preqin reported that a record 486 funds were in the market seeking $239 billion as of July. That was up from 436 funds at the start of the year and 399 at the beginning of 2019. Direct lending funds were the most prolific, accounting for 47 percent of fundraisers, while distressed debt vehicles made up 12 percent of the funds seeking capital. In terms of the amount of capital targeted, however, distressed debt funds accounted for 28 percent of the money being sought by fundraisers.
“With a significant amount of defaults expected in the coming months, more managers are seeking opportunity in the distressed debt space,” Preqin said in a report on the data. “While direct lending funds continue to account for the largest proportion of aggregate capital targeted within the asset class, distressed debt funds are also aiming for a significant amount of capital.”