After many years of dismal fundraising activity, the private equity industry is finally feeling the love from limited partners. Sure, it’s true that some firms that raised funds in the 2006, 2007 and 2008 timeframe are dying a slow death, but the firms that produced returns during the past couple of years are able to raise new, bigger funds. In fact, two of the three private equity firms that won Mergers & Acquisitions’ M&A Mid-Market Awards this year have recently raised their largest funds ever.
GTCR, Mergers & Acquisitions’ Private Equity Firm of the Year winner, raised GTCR FUND XI, closing on $3.85 billion of equity, while the Riverside Company closed on $1.5 billion for Riverside Appreciation Fund VI. The firm’s co-CEOs have been named Merger & Acquisitions’ Dealmakers of the Year.
Additionally, newer firms that are investing out of their first or second funds are also garnering more attention than they have in the recent past. The proof is in the numbers. According to Preqin, 145 private equity firms raised $169 billion in 2013, the highest amount since 2008 when 232 firms raised $230 billion.
“In general, while fundraising is never easy, it does seem to have strengthened somewhat over the past twelve months. For managers with Roman numeral II or greater in the name, a verifiable track record that includes realizations, and seeking greater than $250 million to $300 million, the market seems to be more accommodative,” say Joshua Sobeck, a partner with 747 Capital, a New York-based fund-of funds firm.
I know limited partners’ still have hesitancy about investing in new firms, but I am glad to see their reservations are starting to thaw. Don’t get me wrong, during the recession, and even today, it is extremely hard to raise a fund. In fact, Stewart Kohl, co-CEO of Riverside, said, “Raising a fund can take twice as long, be four times as hard and ultimately lower yielding then in 2006/07. And many firms aren’t able to raise the next fund,” however, it’s not impossible to raise a fund anymore and limited partners are steadily putting more capital to work in lower vintage private equity funds.
“Over the last 18 months distributions to investors in private equity in North America and Europe have increased significantly, freeing up room in their private equity allocations that had been strained since the financial crisis. These investors now have more room to consider new GP relationships, including first time managers,” says Kelly DePonte (pictured), a managing director in the San Francisco office of Probitas Partners.
Indeed. For example, in April 2013, Ridgemont Equity Partners, a Charlotte-based middle market buyout firm, closed on its debut fund, Ridgemont Equity Partners I, L.P., with $735 million. Dallas-based Trive Capital Holdings LLC was able to close Trive Capital Fund I LP with $300 million in commitments. Lastly, HGGC, (formally known as Huntsman Gay Global Capital) started raising its second fund with a target of $1 billion. According to reports, the Palo Alto, Calif.-based firm is close to holding a first close.
With all the new capital that’s ready to be put to work, here’s hoping this trend continues and dealmakers are able to find quality deals for investment.