The European mid-market was relatively subdued in 2009 both in terms of deal activity and fundraising, according to research by Acanthus.
Despite the slowdown and in the toughest of fundraising conditions, a creditable EUR7.9bn was raised by 41 European mid-market funds.
Acanthus saw longer fundraising periods reflecting the fundamental change in fundraising conditions for both general partners and limited partners such as fund of funds.
In 2009, LPs continued to experience serious liquidity issues as they lacked distributions from their investee funds and their existing commitments remain substantially uncalled.
Despite the challenges of fundraising and based on our recent performance analysis, mid-market funds have demonstrated their ability to deliver superior returns to investors compared to large and mega funds. Funds in the EUR1bn+ bracket posted a net loss of some EUR16bn from the EUR84bn they had called; stripping out the eight highly profitable funds reveals a net loss of over EUR23bn on EUR62bn called.
However, stronger mid-market performance has not been directly correlated with fundraising – so far. Amounts committed to mid-market funds decreased as a percentage of the total allocated to private equity from 44 per cent in 2006 to 30 per cent in 2009.
Expectations for fundraising in 2010 remain low. The key issue continues to be liquidity: distributions are likely to lag behind the pickup in deal activity. This large capital overhang needs to be worked through to see a significant expansion in fundraising activity, the report says.
Private equity investors are now screening more closely for superior, operationally driven returns and differentiated strategies by region. As a result, commitment decisions involve more detailed due diligence processes and extensive benchmarking, assessing value creation drivers, risk management and LP/GP alignment of interests.