This content is from: Portfolio

When $1 Trillion Isn't Enough

Private equity firms plan to raise larger funds this year even as they sit on a record $1 trillion of dry powder.

  • By Amy Whyte

After a record year for fundraising, private equity managers are aiming for still higher levels of investor capital in 2018, according to a PitchBook survey.

Just over half of private equity professionals said their firms will raise a new fund this year, up from 40 percent in 2017, financial data firm PitchBook said in a report released January 4. They plan to raise at least as much as their predecessor funds, with 21 percent of those surveyed aiming to raise 50 percent or more capital this time around.

Such ambitious plans follow a landmark year for private equity, with investors pouring an all-time high $453 billion into the asset class. That’s pushed so-called dry powder, or committed capital that has yet to be deployed, to more than $1 trillion for the first time ever, according to data firm Preqin.

While this record level of dry powder hasn’t discouraged the majority of private equity managers from raising more money, it has served as a partial deterrent: Survey respondents whose firms weren’t launching new funds this year cited uninvested capital as the biggest reason for sitting out 2018 fundraising.

[II Deep Dive: Private Equity’s Capital Avalanche]

For private equity firms that plan to raise new investment pools this year, buyout and growth funds are the most popular, according to PitchBook. Secondary investments and funds-of-funds will also be prominent strategies in fundraising this year, the survey shows.

More than two-thirds of surveyed managers said they will not offer any “special incentives” like fee discounts or co-investment opportunities to limited partners who make early or large commitments, a response that PitchBook said implied private equity firms “still retain most of the power in fundraising negotiations.”

A Preqin report in July revealed that management fees climbed in 2017 across the private capital industry as investor demand for private investments continued unabated. Among buyout funds raised in 2017, the average management fee was 1.94 percent, up from 1.85 percent in 2015, according to the report.

Related Content