Private equity fundraising in Q1 2014 has registered the best Q1 total since 2008, collecting $97bn in aggregate capital commitments. This continues the trend of a thriving private equity industry following the strong performance in 2013, where capital garnered increased to a post-crisis record of $494bn including $161bn in the final quarter of the year.
The capital raised indicates much about the current climate for private equity investments and the attitude of investors towards the improving global economic climate. This is particularly true in the US and Europe, where economies have started to see stable growth along with sustained low interest rates and it is no surprise to see that 85% of the capital accumulated in Q1 2014 was by funds with a primary focus on either of the two regions. Interestingly, only 187 funds closed in Q1 2014, the lowest figure in this time period since before the crisis. Both the geographic focus of the funds attracting the most investment, and the small number of funds sharing this capital indicates the dominance of the larger, more established players in the private equity market. This is supported by the fact that the average closed fund size of $649mn for Q1 2014 is, once again, the largest since Q1 2008.
Breaking the funds down by type, buyout funds unsurprisingly collected the largest amount of capital, with 33 funds raising $28bn. This figure is closely followed by real estate funds, 37 of which closed with $24bn to invest. On the other end of the scale, venture capital funds had a steady start to 2014, with 52 of these funds raising just over $8bn. This figure was exceeded by growth funds which managed to garner $9.6bn from only 13 funds, helped by four funds in that category that finished with capital commitments equal to or over $1bn.
The largest fund that closed in Q1 2014 was the Blackstone Real Estate Partners Europe IV, collecting €5.1bn to invest in real estate opportunities throughout Europe. In fact, 27 funds closed in this time period on or over $1bn, cumulatively raising $61bn, or 63% of the total amount raised for the quarter.
Such a strong quarter for private equity fundraising will be difficult to match going into Q2 particularly against the benchmark of 2008. In Q2 of that year, private equity funds raised a total of $212bn – a figure that will take some beating. However, this is not the only challenge private equity firms may face in the coming quarters. The real test comes in finding suitable candidates for their excess dry powder.