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Bifurcation in the North America-focused Fundraising Market – December 2013

by Stuart Hunter

  • 09 Dec 2013
  • PE

North America-focused fundraising exemplifies the bifurcation witnessed in the wider fundraising environment; there is a growing disparity in the distribution of LP commitments between large, established managers and small, first-time managers with no performance track record. Preqin’s data suggests that first-time fund managers are finding it harder than before to attract investments from LPs this year. In 2013, 73 first-time fund managers completed the fundraising process, raising an aggregate $9.6bn for investment in North America, which is the lowest amount since 1996. These maiden funds garnered only 4% of the total capital raised by North America-focused funds in 2013. 

The number of funds that have closed with a predominant focus on North America fell slightly this year, from 463 funds that reached a final close in 2012 to 408 in 2013. However, the level of aggregate capital raised by these vehicles increased significantly. In total, North America-focused funds raised an aggregate $225bn in 2013, which is a 14% increase on funds closed in 2012. Consequently, the average fund size of these vehicles also saw an uptick, from $460mn for vehicles that completed fundraising in 2012 to $599mn in 2013. 

The drop in the number of overall funds, paralleled with an increase in aggregate capital garnered, can be attributed to the great influence that large, established fund managers have in the North American fundraising market, raising multi-billion dollar funds. In 2013, there were 52 North America-focused funds that closed on over $1bn. Combined, these funds raised an aggregate $153bn, accounting for 68% of total capital raised by all North America-focused funds in 2013. 

The improving private equity-backed exit activity in North America over recent years has helped drive up buyout fundraising in the region. Buyout funds accounted for the largest share of capital commitments to North America-focused funds in 2013, with 62 buyout funds reaching a final close and raising $54bn. This accounted for 24% of all the capital raised in the region. Real estate funds raised the second largest amount of capital for North America-focused funds, with 91 vehicles amassing $47bn. The largest North America-focused fund to close in 2013 was Warburg Pincus Private Equity XI, which closed on $11.2bn. The fund follows a balanced strategy, seeking a variety of venture capital, growth, buyout and special situation investment. Another notable fund is the $10.3bn Highbridge Mezzanine Fund II, which represents the largest North America-focused mezzanine fund closed since 2006. 

The steady increase in fundraising figures through the closing of large funds raised by established GPs, and the considerable rise in average fund size, reflects the greater weight that LPs now place on a proven track record and the experience of investment teams when assessing which funds to commit to. In addition to the challenging fundraising environment and growing bifurcation in the market between new and experienced managers in 2014, the private equity industry will be monitoring what impact the new SEC general solicitation rules that were implemented in the second half of 2013 will have on a manager’s ability to attract LP commitments. 

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