Preqin’s Funds in Market online service shows that as of May 2015, there are currently 2,216 private equity funds looking to raise capital, targeting a total of $779bn. With dry powder standing at a record $1.3tn, the large number of funds in market will, in time, only add to the ever growing pools of unspent fund capital. Data shows that the average size of private equity funds continues to increase as well, with May 2015 funds in market averaging a target size of $387mn, up 6% on the $365mn average at the same point last year.
The chart below shows how the make-up of private equity funds in market has changed over time in terms of fund type. Most noticeably, we can see the emergence of growth capital funds, which now represent the same proportion as buyout funds (12%), after previously making up only 3% of all private equity vehicles in market in May 2008. This rise may be attributed in part to the increasing numbers of traditional venture capital firms that are starting to raise larger, later stage funds, consequently moving into the growth capital investment sector.
Conversely, this is countered by the declining proportion represented by funds of funds, falling from 15% in 2008 to 8% in 2015. The number of fund of funds vehicles has decreased consistently over the years, with less and less commingled vehicles reaching final close. As the LP community becomes increasingly experienced and sophisticated, the double layer of fees inherent to funds of funds becomes less justifiable and deters participation in the fund type.
The most common fund type is venture capital, with over a quarter of all funds currently in market seeking commitments for this strategy. At 27%, this is the largest proportion venture capital vehicles have accounted for in the period shown in the chart. The recent improvement of venture capital performance could be a driving factor for the uptick, making GPs better positioned to advertise a successful fund strategy; Preqin’s Performance Analyst online service shows that venture capital funds generated the highest one-year returns to September 2014 of all private equity fund types.
Overall, fundraising prospects look strong for the private equity industry, with the total amount of capital raised increasing year-on-year since 2011. GPs across a diverse range of fund types continue to come to market in spite of the high levels of competition, with confidence in LP appetite and in the opportunities to be found in private equity investments. With $183bn secured by 310 funds reaching a final close in 2015 already, hope for another successful year for private equity fundraising remains high.