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Brand name managers move quickly on re-upping LPs

The private equity fundraising market in 2022 will be the most congested yet – with 15 funds returning to raise more than USD15 billion each. Where does that leave everyone else?

By Colin Leopold – The private equity fundraising market in 2022 will be the most congested yet – with 15 funds returning to raise more than USD15 billion each. Where does that leave everyone else?

Though the level of capital flowing to private equity funds is increasing, the number of funds receiving these allocations is not. 

What began as a ‘flight to safety’ during the pandemic has now become a ‘flight to quality’ for many of the new LPs entering the market. 

The number of private equity funds raising capital peaked in 2017 and was down by around 700 last year to 2,445, according to Preqin data. Over the past two years, new investors and those with resource constraints are entrusting their capital to larger, more established managers with vehicles of more than USD5 billion in size. 

“It can take some LPs a while for their programmes to get beyond the well-known brand names and invest deeper into the market, sometimes 10 years,” says Andrew Bentley, a London-based partner at Campbell Luytens. 

Through the first nine months of 2021, around half of private capital raised overall was done via such mega-funds, according to data from Pitchbook. These mega funds include Hellman & Friedman’s 10th flagship buyout fund (USD24.4bn), Silver Lake (USD20bn) and EQT, with two funds each topping USD18 biliion. 

Mega funds

The dominance of these mega-funds is set to continue this year with The Carlyle Group’s latest flagship fund targeting USD 27bn, making it the largest private equity fund in history, KKR’s USD 17bn North America Fund XIII and Partners Group’s fourth buyout vehicle, targeting USD 15bn. 

In total 15 managers intend to raise private equity funds of at least USD 15bn in 2022, according to private markets investment firm Hamilton Lane. Fifteen of the 16 largest European funds (over EUR 5bn) are either back fundraising or will be in 2022. 

The fundraising market in 2022 is set to be so congested by the larger funds coming back to the market more quickly that placement agents say some smaller GPs would be better to simply concentrate their efforts on pre-marketing funds for 2023. 

One placement agent, who asked not to be named, likened the mood in 2022 to ‘The Hunger Games’. 

In 2017, private equity funds waited an average 4.8 years before coming back to market. Today, they wait only 2.9 years. With the growth of fund platform extensions, it has become a perpetual cycle for many of the largest GPs with most rarely out of the market. 

“It will be a record year for re-ups,” says Sunaina Sinha Haldea, global head of private capital advisory at Raymond James. “LPs are finding it very difficult to focus on new relationships, and are really hunkering down on existing relationships. That theme is going to continue for most of 2022.” 

“Plenty of GPs will get funded fast, but plenty of GPs will be waiting for LPs to figure out what they can and can’t do, despite showing strong performance,” says Bentley. 

The key question for GPs in 2022 will be ‘what percentage of allocation do LPs have for new relationships?’ says Vincent Goupil, deputy head at placement agent Jasmin Capital in Paris. 

There is no one answer to this question, say those with knowledge of market. One solution has been for GPs to grow or launch more specialised fund strategies to win over smaller pockets of allocation, for example around sustainability, growth equity or in a specific sector. 

An example of this last year, says Goupil, was first-time French fund Vivalto Partners which raised EUR 500m to invest in healthcare assets. 

But for those GPs on the receiving end of increasing allocation flows in 2022 or converting LPs from their other fund products, the first shock of the pandemic has provided another lesson: be prepared for change. 

“I think something we’ve learned is that anything can happen and so we should remain really, really careful,” says Goupil. 

Be prepared

Pension funds and LPs point to the slow uptick in interest rates, a correction in asset valuations or some other economic or political event as potential headwinds, possibly in late 2022 or early 2023. 

“I think it’s very likely that something like [an economic or political shock] will happen in 2022 and that will impact private market valuations as we have of course seen over the past two years,” says Markus Benzler, global head of multi-manager private equity, UBS-AM Real Estate & Private Markets. “We wouldn’t go so far as to say ‘prepare for it’ but we are very mindful that this can happen.” 

“Let’s be prepared not to always go in one direction.”


Read the rest of the Future flows: The next generation of private equity LPs Insight Report

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