Tentative signs of recovery in the private equity industry are currently being reflected in data from Preqin’s Fundraising Momentum tool. This tool tracks the time spent in market for funds currently raising and funds closed. The outlook appears optimistic as 2014 draws to a close; 2,261 funds are currently in market, with 37% of vehicles in the first year of fundraising, 40% in the second year and 23% that have been fundraising for over two years.
Funds have spent an average of 16 months on the road in 2014 so far, representing a reduction in the amount of time spent fundraising for the first time since 2011. Fund managers have been increasingly cautious with capital commitments, which is reflected in the average time taken to reach a first close remaining at eight months over the last three years. The shortest time taken to reach a first close in the pre-crisis years of 2006 and 2007 was five months. Nevertheless, the average target size achieved at first close is at a high of 50%, the highest it has been since 2009, when 52% of the target was obtained at first close. Furthermore, the percentage of target size collected at final close so far this year is 108%, showing growing confidence in the industry since the financial crisis. This figure is at its highest since 2006, when 112% of the target size was achieved by private equity funds.
A regional examination of fundraising momentum highlights the strength of North America in the private equity industry. There are 1,473 funds currently fundraising that are focused on investment opportunities in North America. These vehicles have spent just 15 months on the road this year, a reduction on the 17 months it took to close last year. It has taken an average of seven months to reach a first close over the last three years, and the target size at first close has increased in 2014 to 48%, up from 46% in 2013. Europe-focused funds are struggling in comparison to their North American counterparts: the time taken to close a fund remains at 18 months and the average time taken to reach a first close is the highest it has ever been at nine months. However, the 107% of target achieved by these funds is at a peak since 2008.
The private equity industry is displaying positive signs of recovery and growth, but a deeper regional analysis serves as a reminder that this trend is not universal. In particular, North America-focused funds spend a shorter amount of time on the road and raise more capital at first close than Europe-focused vehicles. While the private equity market appears to be gradually returning to pre-crisis levels, the difficulties of Europe act as a timely reminder that this success is by no means shared evenly across the private equity universe.