It could take until 2022 before fundraising activity fully recovers
The unfolding Covid-19 induced financial crisis is creating problems for private equity funds currently out on the road fundraising. Moreover, first time fundraisers out there in the market will struggle to reach fund closes this year, and even fewer debut managers are expected to launch new vehicles in the current climate.
And it looks like it will be a while until we see the end of the tunnel. “From our data we can certainly suggest that fundraising is likely to remain challenging,” Preqin’s Justin Beardon told Bloomberg on Wednesday.
Cebile Capital is a private placement agent and secondary market advisor, and serves as a strategic advisor to alternative fund managers. According to Cebile Capital, estimates show that roughly 60 per cent of private equity fundraising closes have been delayed to later in the first half of the year or beyond.
Sunaina Sinha Haldea, founder and managing partner of Cebile Capital, says that while investors are open to doing introductory and follow up discussions on video or phone calls, most do require onsite due diligence to complete their underwriting on a manager.
“With travel restrictions in place, this stage becomes very difficult for investors to complete, which is why most are on hold until the coronavirus crisis abates,” she explains.
Given the recessionary macro environment, most fundraisings are delayed or prolonged, in Sinha’s view.
She continues: “In this environment, managers have to build in a longer period of pre-marketing into their timelines to account for the fact that many LPs will have a long list of GPs to diligence and will prioritise re-ups and existing relationships over new ones.”
With regard to seeing a positive shift to fundraising activity picking up again, Cebile Capital expects this to happen next year.
“We will only see positive fundraising momentum when economic activity returns to normal and the exogenous risks from Covid-19 are gone from the system. We suspect that it will be 2021 before the world economies stabilise again,” says Sinha.
Berlin-based Sobera Capital provides liquidity and management solutions for private equity investors. The firm targets European growth and small-cap funds and assets in ICT, applied technologies and healthcare with transaction sizes of up to EUR50 million.
Sobera Capital isn’t currently fundraising, but says it might do so later in the year. As such, Johannes Rabini, co-founder and managing partner of Sobera Capital, says the team at Sobera hasn’t noticed the delay in fundraising just yet, but comments that it's “likely” that more than half of funds raising capital are affected by the Covid-19 related crisis.
Rabini believes it is possible to do fundraising remotely in times like this, however. The managing partner is a bit more optimistic regarding the timeline of recovery and believes private equity fundraising could pick up again in Q4 of 2020. But it will be two years before fundraising activity gets back to normal, in his view.
“It will take until 2022 until the private equity industry fully recovers, as many funds will not be able to divest and show relevant track record,” says Rabini.