Annual buyout fundraising figures increased for the second consecutive year to $91bn for funds closed in 2012, compared to $77bn for funds closed in 2010, reflecting LPs’ continued appetite for the fund type. However, GPs currently looking to raise capital from investors continue to face a challenging fundraising market. While many GPs are still able to raise funds larger than their immediate predecessor, the degree of growth in fund sizes has been curtailed in recent years. Preqin’s Private Equity Spotlight - March 2013 examines the changes in the size of private equity buyout funds in recent years.
During 2007, over two-thirds (69%) of buyout fund managers closed a fund that was more than 50% larger than its previous fund in the series. This proportion decreased to just over half (52%) for funds closed in 2009, and fell to 35% by 2012. The proportion of buyout funds that have closed and are smaller in size compared to the direct predecessor in the series has increased over recent years.
Thirteen percent of buyout funds closed in 2007 were smaller than their predecessor fund, compared to 19% for buyout funds closed in 2012. In some cases, fund managers, including more established ones, have brought smaller sized funds to market after their preceding fund of a larger size experienced poor performance. Despite this, there are still managers able to raise larger funds than the previous fund in the series, such as Ares Management, which recently closed Ares Corporate Opportunities Fund IV, on $4.7bn, 34% more than the previous fund in the series.
As of April 2013, there are 263 buyout funds in market seeking $234bn in capital commitments, which is almost 2.6 times the amount of capital raised by buyout funds closed in 2012. Over half (55%) of buyout funds currently in market are targeting the same or a smaller amount of capital than the direct predecessor in the series, indicating that many fund managers still remain cautious.