– Q1 PE Fundraising in the U.S. Hits Post-Financial Crisis High
– The 300 Largest PE Managers Ranked
– Ultra-Wealthy Hold More PE than Stock
– Anatomy of a GP’s Post-Financial Crisis Comeback
– EMPEA’s Annual Survey of Emerging Market Investors
– PE KeyTrends Quick Question Results
Q1 FUNDRAISING HITS A POST-FINANCIAL CRISIS HIGH IN THE U.S. private equity market, the world’s largest, reports WSJ Pro Private Equity. Buyout, growth, credit and “other types of funds” raised some $73 billion in the first quarter of 2016, an 8-year record and 5 percent more than in the same period last year. Higher investor allocations for PE in today’s low interest rate environment, and reinvestment of at least two years worth of record distributions explain strong overall fundraising. Venture capital funds raised $13.26 billion, up 51 percent compared to the same period last year, despite concerns that U.S. tech startups are pricey – both historically and compared to valuations in Europe. This year “is shaping up to be a good one” for first-time funds, but managers of U.S. mezzanine and subordinated debt vehicles are seeing fundraising numbers drop in a corporate borrowing market characterized by easily available credit.
THE 300 LARGEST PE MANAGERS IN THE WORLD ARE RANKED by Private Equity International. PEI’s annual ranking shows that the largest managers based on rolling five-year fundraising totals are overwhelmingly American, with only two non-U.S. firms among the top ten – one better than last year. In descending order the All-American top six are Blackstone, KKR, Warburg Pincus, Advent, Carlyle and Apollo, followed by the U.K.’s CVC. Spots 8 through 9 are held by U.S. firms EnCap and TPG with Switzerland’s Partners Group at 10. The collective $285 billion raised by the above firms is nearly a quarter of the $1.24 trillion collected by the 300 biggest firms, with Blackstone taking 5 percent, nearly twice the level of its nearest competitor. Overall, some 68 percent of the grand total is attributable to firms from North America, with groups from Europe, Asia-Pacific and Latin America respectively collecting 18 percent, 11 percent and 2 percent. Middle East and Africa groups brought in 1 percent.
THE ULTRA-WEALTHY HOLD MORE PE THAN STOCKS FOR THE FIRST TIME, at least according to the latest quarterly report from Tiger 21, a network of 410 ultra-wealthy investors, each with an average of $100 million in investable assets. In the first three months of 2016, the group’s aggregate investments in private equity – at 23 percent of total portfolio value – exceeded the value held in stocks – 22 percent – for the first time since Tiger 21 began tracking member holdings in 2007. The biggest change in asset ownership has been the growth of private equity, up from 12 percent in 2007. Over the same time frame, stocks dropped from 28 percent. “When real interest rates are negative…the only way to maintain real value and not go backwards is to take on risk” through illiquid investments like PE, notes Michael Sonnenfeldt, Tiger 21’s founder. Only real estate, at 25 percent, exceeds PE’s share of Tiger 21 wealth.
THE ANATOMY OF A GP’s POST-FINANCIAL CRISIS COMEBACK is part and parcel of Bloomberg’s excellent coverage of the closing of TPG’s latest flagship fund. The $10.5 billion fund, TPG Partners VII, is the first leveraged buyout vehicle closed by TPG in eight years – that’s an unusually long gap between fund closings. Helped by “a new senior leadership structure,” a shift in focus from big buyouts to smaller ones, fresh emphasis on operational improvement, and successful diversification into new private equity strategies including growth, real estate and credit, firm founders Jim Coulter and David Bonderman have distanced TPG from the tarnish associated with the big losses registered by some of their pre-2009 investments. The tale of the firm’s transformation should resonate with many, particularly fund managers who have tried to turn their firms around after stumbling.
EMPEA’S ANNUAL EMERGING MARKETS SURVEY IS OUT and it demonstrates the contrarian nature of private equity investors. The Emerging Markets Private Equity Association’s 2016 survey of 107 limited partners notes that in the next two years 40 percent of investors plan to increase their emerging market fund commitments, 38 percent intend to maintain them and just 22 percent are likely to decrease exposure. Despite current economic turmoil in many emerging markets, the majority of LPs also “expect emerging markets to outperform” developed markets. According to survey participants, in descending order of appeal, the three most attractive emerging markets for investment today are Southeast Asia, India and Sub-Saharan Africa.