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Buyout Funds on Track to Break 2007 Record

Strong investor demand is helping buyout firms raise bigger funds faster.

  • Alicia McElhaney

The buyout industry is on track to raise unprecedented capital from institutional investors this year.

Private-equity firms collected $184 billion in the first seven months of 2017, a pace that may shatter the record in 2007 when buyout funds raised $249 billion, according to Preqin, a financial data provider. Apollo Global Management underscored the trend in recently raising a $24.7 billion buyout fund in just seven months, Preqin said in a July 27 announcement.

Apollo did not respond to a phone call seeking comment.

“The fundraising environment for private equity has been very active due to the amount of capital institutional investors need to deploy, low interest rates, challenges facing the hedge fund model, encouraging performance and increasing comfort with active management through private equity,” Andy Unanue, managing partner at AUA Private Equity Partners, said in an email.

Strong investor demand is helping buyout firms raise bigger funds faster. Asset managers are saying that their pools are “heavily oversubscribed” while the pace of fundraising is showing no signs of slowing down in the second half the year, according to Preqin head of private equity products, Christopher Elvin.

[II Deep Dive: Private-Equity Firms Raise Funds at Fastest Pace Since Crisis]

Elvin said that Apollo’s new pool had a fundraising pace of around $115 million a day. Following the close of the firm’s fund, the buyout industry now has $613 billion in dry powder to put to work, according to Preqin data.

Flush with cash, firms may struggle to put it to work at attractive valuations.

 “Managers are increasingly motivated to deploy capital at a more rapid pace,” Unanue said. “This had led to an expensive market, as competition for quality deals has intensified.”

That’s the challenge of a maturing market, according to Alan Pardee, managing partner at Mercury Capital Advisors, a capital raising advisory firm.

“What is more important than whether 2017 crosses the amount raised in 2007, is the fact that more capital has been raised in the last five plus years than was raised in the five years leading up to 2007,” Pardee said in an email. “The business has simply grown bigger.”