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2010 was a year of two halves for PE fundraising, says Acanthus Advisers

2010 was a year of two halves for European mid-market private equity fundraising, according to Acanthus Advisers 2011 fundraising review.

The second half of the year showed a significant increase in terms of both deal activity and fundraising after the freeze of 2009, with some EUR12 billion was raised overall by 43 European mid-market funds. A notable fundraising trend was the distinct flight to quality of capital, as bifurcation between GPs widened – some GPs raised very quickly and experienced oversubscription, while a much higher proportion than usual have experienced longer fundraising periods. Acute selectivity on the part of LPs has also been reinforced by the often competing exposure offered by secondary investments.

As deal activity has picked up, the level of undrawn capital across both mid-market and large cap funds has decreased, although it remains high in absolute terms: a key gating factor to the dissipation of this capital overhang is the high demand for quality assets in many sectors, which inflates prices and renders deal execution more difficult.  Irrespective of views on the pace of macroeconomic recovery, one thing remains clear regarding fundraising in 2011: demand will be high while supply will be constrained.

Acanthus anticipates a strong pipeline of funds coming to market this year as GPs look to replenish their coffers after having held off on raising over the last few years. On the other hand, LPs remain liquidity constrained due to the time lag involved in translating deal activity into exits and hence distributions. The key question therefore is: who will raise and who will not?

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