Investors face allocation decisions as managers raise ever larger funds

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In its annual outlook, PitchBook Data Inc. predicts that US private equity mega-funds – funds that have raised at least $ 5 billion in capital – will raise a total of $ 250 billion in 2022. If the prediction of the This venture comes to fruition, the capital raised by US mega-funds would exceed the combined $ 144.5 billion raised in 2019, the current 10-year high. In 2021, 12 U.S. private equity mega-funds raised $ 138.4 billion as of November 30.

For example, KKR & Co. Inc. raised a total of $ 102 billion in the first nine months of 2021, more than double the $ 44 billion in capital raised during the year 2020, “and c ‘is with an active pipeline of fundraising initiatives as we look to the future, “said Craig Larson, New York-based partner and KKR’s head of investor relations during the 459 results call. billion dollars from the alternative investment company on Nov. 2.

In addition, the period between the managers’ next fundraisers is getting shorter, due to investor interest and the ease of fundraising – from four to five years on average to around two to three years. on average, Bragar said. For tech funds, the waiting period is only 12 to 18 months, he said.

The implication for investors is that fundraising exceeds distributions, which will create liquidity pressure for the investor, he said.

“At some point, probably in 2022, there will be ramifications in the market,” Mr. Bragar said. “Either LPs will start to reduce the size of engagements, or engage less with fewer managers, or engage less globally.”

Private equity managers are aware that the contribution-distribution imbalance could upset their fundraising. They also note that they don’t start raising new funds until their predecessor has spent the majority of their capital.

During Blackstone Inc.’s third quarter earnings call on October 21, Jonathan Gray, president and chief operating officer of the $ 731 billion alternative investment manager, said a number of his funds lighthouses had invested more than 50% of their capital. But, he said, in most cases Blackstone executives wait until a fund has invested more than 70% of its capital before raising the next fund.

And Blackstone raises money more often, said Stephen A. Schwarzman, president, CEO and co-founder of Blackstone, on the same call. “Our pace of active deployment is leading to an accelerated fundraising cycle for some of our largest flagship funds,” said Mr. Schwarzman. “The overall fundraising outlook is incredibly strong. “

Mr. Gray noted that Blackstone’s growth as a business has opened up new areas for investment in which the business “didn’t have a capital pool before.”

Blackstone invested $ 37 billion in the third quarter and committed an additional $ 30 billion to outstanding deals, its busiest quarter in history, Gray said. The most significant investments were made in rental housing, transport infrastructure, logistics and businesses linked to sustainable development. Even so, Mr. Gray recognized the constraints of investors. Blackstone posted total net inflows of $ 47 billion in the third quarter.

“One of the barriers to fundraising that exists is that private equity has been such a strong industry that investors are in some cases overused,” Gray said.

Blackstone had $ 232 billion in private equity assets under management as of September 30.

Across the private equity industry, while the number of exits was in line with most previous years, exit sizes exploded in the first three quarters of 2021, according to PitchBook data. As of September 30, private equity firms exited 1,129 U.S. companies with a combined value of $ 638.3 billion, a substantial increase from the 994 exits with a total value of $ 366.1 billion on the whole of 2020. However, the number of releases was similar to the 1,120 releases. $ 323.2 billion in 2019.

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