The Coronavirus Crisis Will Make the Big Private Capital Managers Bigger

The largest managers will tighten their grip on private capital markets during the coronavirus pandemic, according to PitchBook.

“Covid-19’s impact on in-person due diligence is thwarting fundraising attempts by nearly every GP and further exacerbating the bifurcation between mega-fund managers and everybody else,” Wylie Fernyhough, a senior analyst for private equity at PitchBook, wrote in a new report analyzing fundraising trends. “Business travel and in-person due diligence will likely be inadvisable for LPs for several months, meaning mega-funds and more established firms will continue to assume the lion’s share of capital.”

According to the report, private equity firms Thoma Bravo, Silver Lake Management, New Mountain Capital, and Francisco Partners have either launched mega-buyout funds — defined by PitchBook as vehicles targeting $5 billion or more — or are nearing first closes in spite of the coronavirus pandemic. Smaller firms, meanwhile, “have had to push out fundraising efforts indefinitely,” according to Fernyhough.

“The largest GPs are in high demand and able to secure fresh capital from LPs at a time when many smaller firms are unable to do so,” he wrote.

This is true across private markets, according to the PitchBook report, which looked at fundraising for private equity, venture capital, private debt, real assets, funds of funds, and secondaries.

“We are hearing from both allocators and managers that re-ups with existing GPs are more likely to find success than new fund strategies,” wrote Hilary Wiek, a senior analyst for fund strategies and performance at PitchBook. “Across private market strategies, this will push the balance even further toward the mega-funds that have been garnering such a large proportion of LP commitment dollars.”

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In the first quarter, PitchBook said 299 private capital funds closed with a total of $206.3 billion in commitments. This “healthy” fundraising total can be at least partially attributed to funds that completed the bulk of fundraising activities in 2019, according to PitchBook.

Investment pools larger than $5 billion accounted for about a third of the fund closures, PitchBook said.

“Big funds are continuing to close with impressive commitment totals, benefitting both from their established names and the fact that LPs had completed much of their due diligence in 2019,” Wiek wrote.

In private equity, four of the five largest funds closed in the first quarter finished their fundraising before the coronavirus outbreak was classified as a worldwide pandemic. But the fifth biggest fund — the Carlyle Group’s fourth Japanese buyout fund — closed with almost $2.4 billion on March 25, having raised more than twice money as much as its predecessor.

Other large funds that closed in March included the 17th fund from venture capital firm New Enterprise Associates, which raised $3.6 billion, and a $5 billion European debt fund from Blackstone’s credit arm, GSO Capital Partners.