– PE-Backed Purchases Hit a 7-Year High in 2014
– Offbeat Alternatives Equal Half of Classic PE Fundraising
– For a Select Number of Managers, Fundraising is Easier
– U.S VC Fundraising Soars
– Investors Look at PE Secondaries Differently
PE-BACKED PURCHASES HIT A 7-YEAR HIGH IN 2014, “with increasing amounts of capital flowing in regions outside the U.S.,” reports The Wall Street Journal. Transactions amounted to $332 billion, the highest annual amount since the $685 billion invested at “the peak of the buyout boom” in 2007 and a 10 percent rise from 2013. While the value of PE-backed purchases in the U.S. dropped 2 percent in 2014 to $181 billion – as prices there reached a post-financial crisis record – deals rose sharply in other regions. European transactions increased 14 percent to $94 billion, Asia soared 68 percent to $42 billion and deals in the rest of the world hit $15 billion, up 25 percent. Despite the overall increase in PE-backed purchases, they were easily overshadowed by PE-backed sales, which increased 30 percent to an annual record of $428 billion in 2014.
THE WALL STREET JOURNAL
OFFBEAT ALTERNATIVES EQUAL 50% OF CLASSIC PE FUNDRAISINGfrom 2007 through the first quarter of 2014, writes Pensions & Investments. Fund-of-fund manager and private equity investment consultant Hamilton Lane is the source of the eye-opening data, which shows as much as $325 billion committed to co-investment, up to $85 billion placed in separate accounts and some $6 billion spent directly – without the aid of specialist managers – on secondary purchases over the period. Investors are choosing alternatives instead of classic vehicles as they “strive to gain control, manage returns and cut fees paid to PE managers.” Ideally, the vehicles will allow investors to commit more to private equity without compromising on their historic return expectations. But alternatives represent a “trade off for money managers,” who “must accept reduced potential earnings in exchange for managing larger portfolios.”
AMONG BUYOUT FUNDS, FOR A SELECT FEW, FUNDRAISING HAS GOTTEN EASIER, but it remains a tough slog for most managers, as a pair of stories from The Wall Street Journal and Private Equity International imply. With investors eager to limit their relationships to a select group of exceptional managers, “pension funds, endowments and wealthy individuals that invest in private equity are finding it increasingly hard to get into the most sought-after funds,” writes The Wall Street Journal. There is an ironic side to investor frustration, given that PEI reports there are 2,227 funds in fundraising mode, an all time record. The funds are seeking $747.1 billion in capital, which is believed to be a six-year high.
U.S. VENTURE CAPITAL FUNDRAISING “SOARS TO NEARLY $33 BILLION IN 2014,” up 62 percent from 2013, reports the Los Angeles Times. The enthusiasm for VC investment was driven by “a strong market for early-stage companies” in a year that “saw the highest number of U.S. VC-backed initial public offerings since 2000, when 210 IPOs were completed. During 2014, 105 companies garnered a total of $9.2 billion.”
INVESTORS LOOK AT PRIVATE EQUITY SECONDARIES DIFFERENTLY THAN IN THE PAST, as stories in PeHUB and Forbes make clear. In 2014, a year of historically high prices, Ardian, the world’s largest manager of capital dedicated to buying stakes in existing private equity funds, accounted for some $10.8 billion of such purchases, “representing up to one-third of total secondary” volume. In a secondary marketplace where buyers have traditionally sought to buy funds at significant discounts to their net asset value, Ardian’s ardor is surprising. But Antoine Drean writes in a Forbes column: “After years of expecting large discounts, the record amounts of capital pouring into secondaries today indicate that investors have accepted a new risk/return paradigm in a market where prices have reached the highest levels since the 2008 financial crisis. Though rarely offering the investment home-runs that primary PE fund investments can provide, fund stakes bought on the secondary market can deliver double-digit returns at lower risk than the blind pools on offer in primary fundraisings. They also return cash faster, typically within three years as opposed to primary funds which can take five years or more.”