PE activity slows down in Q3: report
Private equity fund-raising activity slowed globally in the third quarter of 2017 with 181 funds closing in the period, raising about $95 billion compared to a record $138 billion in the previous quarter, according to a Preqin report.
However, the sluggish quarter should not be much of a concern with aggregate corpus raised this year so far already higher than 2016.
“With a record fund-raising quarter seen in Q2 2017, it was unsurprising that momentum did not continue into Q3: fundraising activity is historically lower in the third quarter of the year, with many managers choosing to close their vehicles in the final quarter. Despite this slowdown, 2017 is still on track to see fund-raising levels surpass 2016 to set a new post-global financial crisis record,” Preqin said in its Q3 2017 Fund-raising Update on 3 October.
Aggregate capital raised in Q1-Q3 of 2017 had increased to $338 billion compared to $286 billion raised in Q1-Q3 of 2016.
If fund-raising momentum continues, 2017 could not only surpass 2016, but may well be within reach of the all-time annual private equity fund-raising record of $415 billion set in 2007.
Interestingly, the last quarter also saw the largest private equity fund ever being closed, the Delaware-incorporated Apollo Investment Fund IX that raised $24.7 billion to be invested in North America and Western Europe. This fund represented around a quarter of total fund-raising for private equity during the last quarter.
In Asia, there are three mega private equity funds in the market—softbank Vision Fund with a target of $100 billion, China Structural Reform Fund targeting CNY 350 billion and China state-owned Capital Venture Investment Fund targeting CNY 200 billion, the Preqin update noted.
During the third quarter this year, 30 private equity funds in Asia closed after raising an aggregate of $9 billion. No. of funds closed 100 90 80 70 60 50 40 30 20 10 0 North America Aggregate capital raised (in $ bn)
Dip in PE activity
“Although private equity has seen a dip in fund-raising levels this quarter, overall the asset class is still seeing strong levels of investor commitment. In fact, private equity is setting a lot of records: dry powder has hit successive highs ($942 billion as at September 2017), record numbers of funds have come to market, and Q2 was the highest quarterly fund-raising total ever seen for the asset class,” noted Christopher Elvin, head of private equity products at Preqin.
“However, with an increase in the number of mega funds coming to market and raising capital from investors, emerging fund managers will have to work even harder to appeal to institutions and attract capital,” he pointed out.
Globally, 267 private capital funds—private equity, private debt, real estate, infrastructure and natural resources—had secured a combined $150 billion—a substantial total, but nonetheless some way off the $204 billion raised by funds closed in Q2. This number for Q3, however, may rise by up to 10% as more information becomes available, but it seems likely that this quarter will come to represent a drawback from the recent frenetic pace of activity.
With regard to real estate fundraising, the closed-end private real estate industry saw 38 vehicles close in Q3 2017, raising an aggregate $20 billion in investor commitments. Among the funds, Carlyle Realty Partners VIII was the largest fund to close in the quarter at $4 billion, just over half of the largest fund raised in Q2, Blackstone Real Estate Partners Europe V, which closed at $7.8 billion.
As at September 2017, dry powder available to real estate managers stood at $243 billion at par with the last quarter. Looking ahead, there are 569 private real estate funds in market at the start of Q4 seeking a total of $185 billion from investors, according to the report.
The private equity-backed buyout industry saw 953 deals worth an aggregate $92 billion in the third quarter this year, the deal activity being on par with that of the previous quarter, according to the data provided by Preqin.
Although deal value in Q1 2017 was the lowest since 2012, due to the strong deal activity in Q2 and Q3, it looks as though 2017 as a whole remained on course to record aggregate deal values similar to 2016, it said.
In fact, aggregate deal value in Asia had increased, and was around $3 billion less than that of North America buyout deal value. The jump in Asia deal value was mostly due to the two largest deals being announced in the region, worth a combined $30 billion.