Amid an M&A and IPO slump, private equity is
experiencing continued success. While other financial sectors
have wrestled with political volatility such as Brexit
uncertainty and economic setbacks like the China-US trade war,
private equity fundraising appears to continue spiralling.
"Private equity is a massively growing asset class that has
seen real outperformance," said Kristina Widegren, principal at
fundraising advisory firm Rede Partners. "Allocations are still
increasing on a yearly basis, and it is delivering a
considerable amount of new capital to the industry in terms of
limited partners (LPs) looking to invest more in private
She continued that this then fuels a healthy fundraising
market. At the same time, she said, "it has been a benign
market in terms of where we are with the economy. This has
resulted in private equity funds performing very well".
According to Widegren, general partners have been returning
considerable capital to their LPs, and thus have large inflows
coming back to them.
"There is a degree of discussion in the market about whether
or not there will be a correction, when it will come, and what
it will look like," said Linklaters partner Matthew Keogh. "The
market thus far has generally been pretty optimistic on the
Keogh continued: "On the deal side, commentators have been
noting high asset valuations creating attractive uses for
capital…spending isn’t as straightforward
as it used to be, but very big deals are still being done."
• Private equity is continuing to be a success story for
• Fundraising seems unlikely to subsist just
• Commentators predict storm clouds ahead,
which could see a potential downturn take place;
• Mega-funds will continue to benefit from their
His thoughts were echoed by Tom Whelan, partner at Hogan
Lovells."There is a lot of investor money out there looking for
a home," he said. "If you’re going to raise a
fund, now appears to be the prime time to raise one, while
investors have cash to deploy."
While Whelan can’t be sure if an economic
downturn will take place, he speculated that "if there is an
economic downturn next year and you have raised a fund, then
you’ve got committed capital plus the
opportunity to potentially buy assets more cheaply".
But, he added, "you’ve got to be convinced by
the value proposition and that value isn't going to fall
further. If players feel that a correction is coming, they
will price deals accordingly."
He also pointed out that "there is nervousness among some
players about a possible correction, as no one wants to be
caught with their pants down in this kind of economic
situation. When the ocean has pulled out and
you’re left there baring all, it is not good for
your funders or your fund, and could dent your ability to
raise new money."
Market correction is coming…
"People are wondering how much longer the music will keep
playing for," said another source who works closely with
private equity firms. "Potential slowing of the economy is
making some financial players want to get in before they risk
losing out. They want to take advantage of conditions whilst
Widegren added: "From a private equity perspective, clearly
we are in a good place at the moment. This is in terms of funds
deploying, delivering and returning capital to investors.
Investors are seeing very good returns on their capital. This
does however pose the question about where we are in the
She continued: "Prices are high, but as yet worries about
the cycle are not having an impact on fundraising."
In her view, private equity is better-equipped than other
elements of the financial sector to cope in an economic
"It is a longer term investment and, as a private asset
class, your ability to implement changes are higher which means
within that environment, it is viewed as an attractive asset
class," she explained.
On the horizon
"Again, when thinking about the amount of capital raised in
recent years, there is a sense among limited partners that this
should at least normalise or even slow down," said Widegren.
"This is something we should all be quite conscious
Her comments were reaffirmed by those of Keogh, who said he
expected funding to remain strong.
"In Europe, many mega-funds are due to come back to market
in the next twelve months or so," Keogh said. "In addition,
some of the big houses have been, and are increasingly looking
to diversify their current product mix, which is a trend
we’ve seen some of over the last few years."
"When the ocean has pulled
out and you’re left there baring all, it
is not good for your funders or your fund, and will
dent your ability to raise new money."
Keogh also pointed out the benefits of mega-funds to firms
with large amounts of dry powder at their disposal.
"This goes right the way up the value chain from the
mid-market, where the major funds can compete, all the way to
the top of the market," he said. "There is quite a lot of
flexibility in the kinds of deals that can be done and the
nature of the contortion that can be brought together."
According to sources, there is a desire – and a
need – from limited partners to increase their
allocations. This is seeing mega-funds attracting large pools
"In today’s market, where those are performing
very well, there is a question from the larger limited partners
about why you should take a risk with a smaller fund when
you’re getting strong returns from larger funds,"