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How Competitive is Private Equity Fundraising in 2013? - October 2013

by Joanna Hammond

  • 11 Oct 2013
  • PE
  • RE
  • INF

There are now a record 2,004 private equity, real estate and infrastructure funds seeking capital, making the fundraising process more competitive than ever. Preqin recently surveyed over 100 institutional investors to determine just how difficult it can be for fund marketers to secure commitments in an increasingly crowded marketplace.

A Preqin survey conducted in 2012 found that on average, investors received 31 closed-end private fund marketing documents per quarter. Given the record number of funds in market, it is no surprise that in 2013, this had increased to 35 fund marketing documents per quarter. However, some investors can receive considerably more unsolicited approaches from fund marketers, with 10% of investors surveyed in 2013 receiving marketing documentation for over 100 funds per quarter. With many investors inundated with unsolicited marketing materials, even good opportunities that fit their investment criteria can struggle to be heard above the noise. Just 17% of funds that send unsolicited marketing materials to investors typically make it through the initial filtering stage of the due diligence process. Investors told Preqin that on average, only two funds that made an unsolicited approach go on to receive a commitment each quarter: 94% of unsolicited approaches made by fund marketers are unsuccessful.

The investors we spoke to told us that typically, only 46% of the marketing documentation they receive is aligned with their investment criteria. As a result, over half (54%) of funds are rejected immediately, making a lack of alignment with an investor’s investment criteria the main reason that funds do not make it past the first-cut. Furthermore, 15% of investors surveyed said that they do not even respond to unsolicited approaches, so fund marketers must use a variety of different methods in order to get an investor’s interest in a fund.
 
As well as positioning a fund in front of a wide audience of institutional investors, fund marketers must also ensure that the information they display to investors is clearly and effectively presented. A number of investors told Preqin that they reject funds due to problems with the marketing documentation provided by fund marketers. Fourteen percent of investors cited a lack of key information in marketing materials as a leading reason for rejecting funds, and a further 10% frequently discount funds because the key information in the marketing material is difficult to understand. Fund marketers that fail to provide investors with quality information in a simple format can see their fund rejected at an early stage, even if it fits an investor’s criteria.

Fund marketers can find out about new services to help them during the fundraising process here. For more information about the tools Preqin has created to help investors seeking opportunities, please visit www.preqin.com/pin. Read the full report, Best Communication Practices for Fund Marketers – Private Equity, Real Estate and Infrastructure here.

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