There have been concerns among some commentators that fund managers are returning to market more quickly than before, as they seek to take advantage of institutional investors’ liquidity and appetite for the asset class in order to gather as much capital as possible. That dry powder stands at almost $1.2tn as at March 2018, and record fundraising in 2017 was driven by several landmark fund series, do seem to offer some evidence to support this.
Private equity firms are leaving less time on average between their fundraising cycles, with the period between predecessor and successor funds falling. In 2013, on average, the time taken between the final close of a predecessor and successor private equity fund was just over 52 months; since then, there has been a year-on-year decrease in the average time between the final close dates of a predecessor and successor private equity fund. In 2018 YTD, it took an average of 42 months.
Successor funds of $5bn or more see more volatility in the average time between final fund closures than successor funds of a smaller size. In 2018 YTD, when a successor fund raised $500mn or more, on average the time between final fund closures of the successor fund and its predecessor was 40 to 50 months.
Asia-based private equity firms typically raise a successor fund more quickly than other regions, with an average of 35 months taken between the final closes of their predecessor and successor funds in 2018. North America-based firms raised funds at a similar pace to their Asia-based counterparts: on average, 38 months passed between the final close of a predecessor fund and a successor fund closed in 2018.
Preqin finds that while the average time between fund closures has fallen by 10 months since 2013, it is still higher than it was in 2008. Additionally, the median proportion of called-up capital in predecessor funds at the time that successor funds have closed has remained relatively constant, never falling below 80%. In 2017, on average, firms called up 84% of their predecessor fund. Even though dry powder has risen above one trillion dollars, the ratio of dry powder to called-up capital has remained broadly flat, suggesting that fund managers are deploying capital at a similar rate as they are securing it.
To see further data on private equity fund lifecycles, follow this link.