As the world continues to recover from the financial crisis, a more stable economic landscape and the return of confidence in the economy is likely to bolster entrepreneurship, innovation and growth. As younger companies grow, they can face challenges in order to reach their potential and need a larger injection of capital in order to create additional product lines, to implement new technologies or to internationalize operations. This growth capital is defined by Preqin as a strategy where fund managers take a significant minority stake in more mature and profitable companies, without the use of leverage in the transaction, over a similar period as would be seen for a leveraged buyout deal.
Preqin’s Funds in Market module tracks 262 funds currently raising capital seeking to deploy this strategy. Of the 262 growth funds in market, 12% of the total number of private equity funds raising, these vehicles are targeting an aggregate capital amount of $64bn, with an average fund size of $270mn. To date, nearly $9.8bn has been raised in interim closes across these funds, 15% of the total capital being targeted.
There are more growth funds in market with a primary investment focus on Asia than any other region, with 94 Asia-focused growth funds currently in market targeting $28bn in capital. Asia-focused funds tend to dominate the growth capital universe, having accounted for the largest proportion of growth capital raised each year from 2008 to present. 2014 witnessed a recovery for growth fundraising in Asia, with funds closed in 2013 collecting just $9bn, down from $18bn the previous year.
The largest growth fund in market focusing on Asia-based investments is CICC Qianhai Development Fund, managed by China International Capital Corporation Private Equity. The fund is targeting $3.3bn and looks to invest in a diverse range of high-potential companies registered in the Shenzhen economic district of Qianhai, primarily in industries including financial services, logistics, information providers and technology.
As the chart shows, Europe has the lowest number of growth funds in market (35) and the lowest amount of targeted capital ($7.6bn) of all regions. This is in spite of the increase seen in growth fundraising in recent years for Europe, with 2014 actually witnessing the largest amount of capital raised for Europe-focused growth funds on record ($4.4bn).
The largest of these growth funds targeting Europe is A Capital Growth Fund II. The fund is targeting €1bn and seeks to invest in to small- and mid-cap Europe-based businesses with the potential to expand into Asian markets, particularly China. The main focus of investment will be in companies that target sectors impacted by urbanization, such as clean technology, medical technology, e-commerce and hospitality.
With $8.3bn collected in growth capital by Asia-focused funds so far in 2015, and 94 funds in market with a primary focus on the region, it is likely that fundraising will remain steady for the year as a whole.