According to Preqin’s Funds in Market online service, private equity fundraising remained strong in 2014, securing just under $517bn in aggregate capital commitments from investors. This is $10bn less than the aggregate capital raised in the previous year; however, investors allocated larger capital sizes to fewer funds in 2014, increasing the average fund size by $105mn. In terms of the number of funds reaching a final close, 2014 saw a 14% decrease from 2013’s total (1,206).
As seen in the chart above, the number of funds that exceeded their target size in 2014 outweighed those which closed under target for the second consecutive year, a positive sign for fund managers. The largest fund to exceed its target in 2014 was Hellman & Friedman VIII, which raised $2bn more than its target of $8.9bn. Historically, the firm regularly closes its funds above their original targets. It is evident that investor confidence in the industry is growing, especially when we look at fundraising figures for 2009, when only 31% of closed funds either met or exceeded their target.
In 2014, 54% of all funds raised by North America-based fund managers exceeded their target size, representing 64% of all funds worldwide that closed above target. Europe-based fund managers also closed 54% of their vehicles above their target size, accounting for a quarter of the total number of funds worldwide that exceeded their target size. For North America-based fund managers, 54% is an increase from their fundraising success in 2013 (46%), suggesting that investors are more confident in allocating more capital to these managers. First-time fund managers, however, may have struggled to attract capital from investors this year as only 15% of funds closed exceeded their target size, a decrease from the 36% of funds that closed above target in 2013.
Optimism prevails so far in 2015; 46% of funds closed to date have secured amounts of capital above their target size. However, the year ahead may be difficult as fund managers struggle to renew existing collaborations with LPs. CaIPERS’ announcement to reduce the number of its private equity GP relationships by up to two-thirds may diminish the number of funds that exceed their target size, but 2015 may see other investors taking the leap to fill this void.