Private equity funds that closed in 2012 secured on average 44 per cent of their target capital by the time they held a first close, the lowest proportion in the period since 2006, according to a study by Preqin.
In addition, private equity funds closed in 2012 took an average of eight months to reach a first close, compared to five months for funds that closed in 2006.
However, evidence from 2012 suggests reaching a first close quickly can increase the chances of overall fundraising success. Fifty eight per cent of funds closed in 2012 that held a first close within three months went on to meet or exceed their fundraising target, compared to 36 per cent that took over a year to reach first close.
Some 61 per cent of funds closed in 2012 held a first close within six months, while 12 per cent took over a year. All secondaries funds closed in 2012 reached a first close within six months. 80 per cent of distressed private equity funds and 83 per cent of natural resources funds did the same.
A total of 47 per cent of buyout funds closed in 2012 secured over half their target by the time a first close was held, compared to 22 per cent of mezzanine funds.
Advent Global Private Equity VII took just four months to reach a first close, securing EUR5.8bn in March 2012 and then went on to hold a final close on its EUR8.5bn hard-cap in November 2012.
Some 64 per cent of investors consider investing in a fund before a first close, primarily to take advantage of benefits such as lower management fees or co-investment rights offered by fund managers as incentives.
“Attracting investor capital remains extremely challenging for fund managers in the present economic climate, as witnessed by the ongoing trend of funds taking longer to reach a first close but securing less capital,” says Ignatius Fogarty, head of private equity products, Preqin. “However, it is evident from funds closed in 2012 that reaching a first close sooner rather than later can have a profound impact on the likelihood of a fund reaching its overall target. It is therefore encouraging that many investors consider committing capital to funds before an initial close, primarily to secure more favourable fund terms and conditions.”
