The overwhelming majority (84%) of private equity professionals believe their firm will be engaged in fund raising activity over the next 12 to 24 months, according to a new study by Investec Fund finance.
However, underlining the increasingly competitive fundraising environment, on average respondents predicted that 30% of fund raisings by UK and European based GPs will fail to get off the ground with one in five suggesting the percentage could be at least 40%.
Despite the level of competition for capital, almost one in four (39%) of GPs representing firms with fund sizes ranging from under GBP250 million to over GBP2 billion, predicted that their next fund will be larger than their current fund. Only 13% said it will be smaller while most respondents (44%) believed it would about the same size.
The research comes as funds worth an aggregate EUR7 billion are set to return to the market before the end of the year and industry professionals concede that funds are being forced to compromise on investor demands, particularly in light of the threat that investors may have to reduce their allocations in 2012 following a revaluation of their investment portfolios.
Simon Hamilton (pictured), Investec Fund Finance, says: “While this research suggests there will be a tremendous amount of fundraising over the next two years GPs acknowledge that in this harsh environment, many won’t be successful. Yet GPs remain bullish about their own firm’s fund raising prospects given how many believe they will be able to raise a fund that is either the same size of larger than their existing one.”
The Investec Fund Finance team focuses on the financing needs of leading private equity funds and the professionals behind them. Investec offers a broad range of financing facilities tailored to the unique requirements of the private equity sector.
Typically, the loan sizes are greater than GBP5 million and can extend to between GBP50 million and GBP75 million at the higher end. The loans are usually structured against the private equity investments, management company cash flows or investor commitments.
Deals that the Fund Finance team has already provided finance for this year include: a
GBP15 million loan to F&C Capital Partners LP and provision of a GB14 million debt facility to the management of Clyde Blowers Capital.