Latest data shows that fundraising for private equity has hit a particularly dry patch amid an increasingly competitive environment.
According to the Paul, Weiss PE Fundraising at a Glance report, 246 funds reached their final closing globally in the April through June period, the lowest in any quarter over the last five years, and down 29.5% from 349 in the first three months of the year.
Furthermore, aggregate capital raised for private equity is now around the $150 billion average quarterly lows last seen in 2020.
Those numbers, which draw on figures from data provider Preqin, must be disconcerting enough for general partners. In addition, there were 5,973 private equity funds in the market globally as of the second quarter, the most at any time over the last five years. according to the report. That means competition for capital from limited partners is fiercer than ever.
Private equity is a cyclical business, and a fundraising peak in one period is usually followed by a trough when the capital raised is put to work. However, market consensus is that the fundraising downturn is long past the usual fluctuations.
Preqin’s analysis from June suggests a few bright spots for fundraising in the second half year, with the number of family offices allocating to private markets surging 524% since 2015.
Also, news that the Trump administration may open private equity investment to 401(k) plans must come as a breath of fresh air for some funds. However, many of those funds may fail to reach a close before those effects kick in.
The fundraising slowdown may or may not have been responsible for the reported pause in fundraising for BlackRock’s third Asia Pacific private credit fund. According to news reports, the fund, launched in late 2023, had raised less than half of its $1 billion target.
In any event, the market looks likely to remain tough. The Financial Times quoted Marco Masotti, investment funds group global co-head at Paul, Weiss, saying that private equity firms had been offering a plethora of discounts and management fee cuts in order to entice LPs into their funds, while LPs remain dissatisfied with the slow pace of dealmaking and returns.
It remains to be seen whether the current drought causes a lasting shift in the industry’s expensive two-and-20 compensation and management fee structure. But many fundraising efforts may not survive to see any change.
