The majority (63 per cent) of private equity fund managers – regardless of fund size – are receiving new commitments from Limited Partners (LPs), according to the third annual PErspective private equity study by BDO USA. That’s up from 56 per cent of fund managers who indicated they were receiving new commitments from LPs in 2010 and only 40 per cent who said so in 2009.
The largest per centage of funds indicated they are receiving the majority of first-time financial commitments from family offices (55 per cent), followed by pension funds (21 per cent), international investors (11 per cent), endowment funds (9 per cent) and insurance companies (4 per cent).
"There are a significant number of funds that are either currently fundraising or planning to do so in 2012, which could lead to a marked uptick in fundraising activity in the coming year," says Lee Duran, partner and private equity practice leader at BDO. "However, it won’t all be smooth sailing on the fundraising front. The notable capital overhang of private equity funds is likely to impact commitments in the coming year as investors look for fund’s cumulative distributions to increase."
In fact, despite the uptick in the number of fund managers receiving new commitments from LPs, the majority of respondents acknowledge facing challenges in regards to fundraising. When asked about the current fundraising environment, the largest percentage of respondents (35 per cent) identified institutional investors reallocating their assets away from alternative investments as the most significant challenge they have faced. Another 22 per cent and 12 per cent, respectively, identified the quantity of private equity funds raising new funds and past funds’ track record during the recession as the number one challenges.
Despite the significant number of mature portfolio companies in the market, the majority of private equity fund managers (91 per cent) indicated their expected average holding period is longer now than it was 12 months ago. That’s up from 70 per cent who indicated the same in last year’s study. The largest percentage of respondents (31 per cent) indicated their expected average holding period is 7-12 months longer, with another 28 per cent indicating it is 13-18 months longer. Nearly one in five respondents (19 per cent) indicated their expected average holding period is currently more than 2 years longer than it was 12 months ago.
When asked how their exit assumptions have changed compared to 12 months ago, 21 per cent reported an increased focus on sales to strategic buyers, 15 per cent reported an increased focus on a long-term hold and 7 per cent reported an increased focus on sales to financial buyers. Only two per cent reported an increased focus on IPOs.
For the second year in a row, the majority of private equity fund managers (62 per cent in 2011 and 63 per cent in 2010) reported they will increase professional staff headcount at the operating company level during the next 12 months. When asked about the past 12 months, 57 per cent of respondents reported increasing professional staff headcount and another 31 per cent reported increasing administrative staff headcount at the operating company level. At the fund level, 44 per cent of respondents reported increasing employee count during the past 12 months and 42 per cent plan to do so during the next year.
These findings are from the third annual BDO PErspective Private Equity Study, which was conducted from October through December 2011 and examined the opinions of more than 100 senior executives at private equity firms throughout the US with USD10 million to USD72 billion in assets under management.
