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Is the Mega Buyout Fund on the Way Back? – June 2014

by Luke Goldsmith

  • 30 Jun 2014
  • PE

Preqin’s Performance Analyst defines mega buyout funds as those vehicles with a final close size over $4.5bn and a vintage from 2005 onwards, or a final close size of over $2bn and a vintage from 1997-2004. Preqin’s Funds in Market online service shows that there was a period when mega buyout funds were commonplace. Before the financial crisis started to take full effect, from 2006-2008, mega buyout funds raised over $100bn in aggregate capital commitments each year. The best year was in 2007 when $119bn of capital was raised by 13 such funds. After that bumper year, 2008 followed in similar fashion but it wasn’t until 2013 that the industry began to show signs of recovery and came close to matching such heights. In 2013, 10 mega buyout vehicles amassed $95bn in total commitments, the greatest number of funds raised since 2008. 

Half of all the capital raised in 2013 was accounted for by mega buyout funds, the largest percentage since 2002 (53%). However, the figure in 2013 is all the more impressive considering there were a total of 172 buyout funds raised in 2013, whereas in 2002 there were only 110. The resurgence of the mega buyout fund could be due to the fact that investors are more comfortable in committing their capital to the more established managers that have proven track records with their previous funds. The largest fund in 2013 that was raised by a first-time manager was Adelis Equity Partners I, which gathered only $570mn. This compares to the largest fund raised overall, the $18bn Apollo Investment Fund VIII which is the largest buyout fund to be raised since 2008. It is sector-agnostic, but with a primary focus on North American investments. It can invest up to 35% outside of North America, with a particular preference for opportunities in Western Europe. 

However, the latest statistics for 2014 to date do not show the same strength that was evident in the 2013 private equity market. There are currently only three mega buyout funds in market, collectively aiming to raise $20bn in aggregate capital commitments. This is far less than in June 2013, when there were nine funds looking to pull in nearly $70bn. If all four funds were to close this year, along with the four mega buyout funds that have closed already in 2014 YTD, the total figure would still fail to even reach half that of 2013’s total. 

This evidence suggests that although mega buyout funds are on the comeback trail, it will be a few years yet until the figures will be as consistent as the years immediately prior to the financial crisis. However, the industry shows that it is not just mega buyout funds that are gaining prominence again – buyout funds as a whole in 2013 raised $190bn, which is more than in any year since 2008. Preqin’s Funds in Market online service demonstrates that the best year for buyout funds was 2007, when 253 vehicles collected $246n in total capital commitments. 

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