As the world continues to emerge from the shadows of the 2008 financial crisis and confidence begins to resurface, how is private equity faring after a troubled period through the downturn? The length of time a private equity fund takes to raise its capital and hold a final close can be a good indicator, with increased time on the road a key sign of the tough conditions in the recent past. According to Preqin’s Fundraising Momentum tool, funds closed in 2013 saw an average of 18 months between launch and a final close, representing the longest time on the road since 2006, along with 2010 and 2012. So far, for private equity vehicles closing in 2014, this figure has fallen to 16 months, some way off the shortest fundraising periods seen in 2006 and 2007 at just over a year.
Analysis of Preqin's Funds in Market data shows that for private equity funds closing in 2013, the average North America-focused fund spent 17 months raising capital, compared to just 14 months so far this year. Equally, Asia-focused funds seem to be closing quicker this year with time on the road down from 21 months in 2013, to only 17 months for those closing in 2014. The trend continues for Latin America & Caribbean (LAC) and South America-focused funds too, with a fall so far in 2014 of eight months to 18 months on the road, down from 26 months seen for those 2013 closed funds. Europe-focused funds are yet to see any change this year, with a steady average of 18 months spent raising.
Amid the concern surrounding the concentration of investor money going only to the big private equity players, Preqin’s Fundraising Momentum tool has some good news for first-time funds, with private equity funds closed so far this year posting the shortest time on the road since 2008. This trend is mainly being driven by Europe-focused first-time funds, with little change seen in other regions.
Crucially, a sign of the burgeoning confidence of the industry comes from the percentage of the target size raised this year so far, which stands at 107% for all fund types and focuses, being driven by North America- and Europe-focused funds; namely buyout. North America-focused buyout funds that have closed in 2014 have actually managed to accrue 119% of their target amount, combined with the 115% that has been collected by Europe-focused buyout vehicles. Conversely, LAC and South America-focused funds to close so far this year have not performed as well on this metric, on average having only collected 85% of their target.
Combining the steady decline of time spent on the road and the now increasing amount of target value being raised, plus the improving prospects for first-time funds, the recovery can be seen to be continuing throughout the private equity industry.