A Record Number of Private Equity Funds Are in the Market — But Closing Them Won’t Be Easy

Although there are a record number of private equity funds in the market, they are raising money at a slower pace, delaying fund closes, according to new data from Preqin.  

The alternative investment data provider shows that a total of 237 private equity funds closed in the third quarter, which is the lowest quarterly total since at least 2015. Meanwhile, there are 3,968 in the market seeking capital, a record number of funds since 2015.  

The coronavirus pandemic has changed private equity fundraising dynamics significantly: Most meetings are now conducted virtually, and the public market correction may have stalled fresh capital commitments, according to Preqin.  

During the first three quarters of 2020, just 39 percent of funds closed in 12 months, according to the data. This is at least six percentage points lower than each of the previous five full-year periods. What’s more, 45 percent of funds took more than 18 months to close — the largest amount since 2015, per Preqin.  

There are, of course, anomalies. On October 1, for example, European private equity firm Nordic Capital announced that it had closed its tenth fund, which it raised fully remotely, with €6.1 billion (US$7.17 billion) to deploy.  

Likewise, on September 29, private equity firm Advent International closed a $2 billion fundraise for its seventh Latin American fund. 

These fund closes are indicative of another trend Preqin pointed out: Despite the pandemic, fundraise sizes grew slightly quarter-over-quarter, to $536 million.  

“This suggests that institutional investors are increasingly preferring larger and more established asset managers,” according to Preqin. “And with ongoing social distancing measures making it more challenging to conduct face-to-face meetings with new managers, this trend could accelerate further as investors prioritize their existing manager relationships.” 

The data bear this out. In the third quarter of 2019, 59 percent of investors were planning capital commitments of $50 million or less in the coming year. That number declined to 50 percent in the third quarter of 2020.  

Instead, more investors are looking to allocate between $100 million and $300 million. According to Preqin, the number of investors interested in allocations of this size increased seven percentage points year-over-year. 

[II Deep Dive: Private Equity Funds Are Making Record Numbers of Buyout Deals] 

Even as the fundraising landscape is changing, private equity firms have completed a record number of buyout deals. Institutional Investor previously reported that more than 5,500 private equity-backed mergers and acquisitions have been announced so far this year, the highest year-to-date total since data provider Refinitiv began tracking this information in 1980.