In 2013, funds pursuing a buyout strategy had one of its strongest years of fundraising since the financial crisis and according to Preqin’s Fund in Market online service, accumulated an aggregate $190bn last year. This is an impressive amount given that in the years 2009-2012, the annual totals raised by buyout funds all fell significantly below the halfway mark of the 2008 fundraising level of $230bn. As we move into Q3, the outlook for this year looks promising as buyout vehicles have already accumulated $1bn more than the total garnered in the whole of 2012 ($96bn). Although data suggests that the fund type is on the road to recovery, how has the fundraising landscape for buyout funds changed since 2008?
As of July 2014, there are currently 258 buyout funds in market, collectively aiming to raise an aggregate $163bn. From this pool, the largest buyout fund on the road is Hellman & Friedman VIII, which is targeting $9bn in capital commitments. Notably, this is $2bn more than the firm’s predecessor fund which was focused on investment opportunities predominantly in the US and Europe.
As expected, US-based fund managers represent the largest proportion (51%) of the number of buyout vehicles in market. These US-based managers are also seeking the majority (58%) of the capital currently being sought for buyout investments globally. Comparing buyout funds in market as of July 2014 with those in market in July 2008 shows a small decrease, 258 and 237 funds respectively. Despite this, these vehicles in market in 2008 were targeting a larger aggregate amount of $275bn. The largest fund in market at the time was Blackstone Capital Partners VI; the buyout fund was initially seeking commitments of $20bn, significantly higher than the $9bn sought by the current largest buyout fund in market.
The difference between the average target sizes of buyout funds in market in 2008 ($1bn) and those currently in market ($682mn) is suggestive of the hardships that fund managers now face in a more difficult fundraising environment, with many seeking lower level capital commitments. This has, however, not deterred 28 buyout fund managers who were actively seeking capital commitments for a buyout vehicle in Q3 2008, as they are fundraising again in 2014.
Appletree Capital is the only manager with a buyout fund currently in market seeking the same target size as their vehicle in Q3 2008. One quarter of the firms currently fundraising are aiming for a higher target than the fund they were raising in 2008. This leaves a large proportion of the firms currently raising a fund targeting a reduced amount of capital.
It is encouraging to see that 94 buyout funds in market have completed at least one interim close, securing an aggregate total of $27bn in commitments. If the buyout fundraising momentum seen in H1 2014 continues into the second half of the year, it is likely to outstrip the 2013 buyout fundraising level.