April 17, 2017
Interviewed by: Privcap
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Fundraising Roundup Q1 2017

The record-breaking fundraising haul in North American private equity is discussed, as well as some enormous new fundraising efforts out of Asia.

The record-breaking fundraising haul in North American private equity is discussed, as well as some enormous new fundraising efforts out of Asia.

Fundraising Roundup Q1 2017

David Snow, Privcap:
I’m joined by Leo Peavy of Preqin. Leo, how are you? Thanks for being on Privcap.

Leopold Peavy, Preqin:
I’m great. Thanks for having me, David.

Snow: Your firm, Preqin, tracks all things alternative investments: data primarily, fundraising, deals. Let’s talk about private equity fundraising and what happened in the first quarter of 2017. Something’s up. The private equity fundraising market is booming, at least in North America where private equity is most developed. Talk about how the first quarter ranks for North America compared to other first quarters in previous years.

Peavy: Absolutely. Q1 for North America was actually the best quarter ever for that region. Regardless of Q1, Q2 or Q3, we have seen $62 billion raised. The previous record was $48 billion, so it easily surpassed the last record, and North America really has driven fundraising numbers for the rest of the global fundraising market. We saw a very weak quarter in Europe and relatively lackluster in Asia as well.

Snow: It seems like there’s two things going on. Number one, clearly investors around the world are doubling down on the U.S. They want to have their capital put to work in the U.S. economy, so you’re getting this flood of capital coming in both domestically and from foreign investors. Also, the U.S. is home to the most mature private equity firms that are the largest and have the largest roman numerals at the end of their fundraising offerings. So, in today’s market, if you are a well-established firm, you have the ability to raise quite a lot of money and quite quickly, correct?

Peavy: Yes, absolutely. We’re definitely seeing a bifurcation of the private equity fundraising market. Especially, as you mentioned, with these North American-headquartered GPs (such as KKR, Apollo, Warburg Pincus), the traditional mega-funds that have been able to raise these $10, $11, $12 and $14-billion funds, which was the largest close this quarter: KKR Fund 12.

Snow: Right. I’m glad you mentioned that. A perfect example: here’s KKR, obviously a brand-name firm among brand-name firms. In the first quarter, [they] closed a fund on $14 billion. It’s largely targeting North America. But, if you look at the funds that are still in market right now that have not yet closed, it’s very impressive. Among them is a new Apollo Global Management private equity fund that might hit $20 billion. If it does, this will be the largest regular way private equity fund ever raised.

Peavy: Since the global financial crisis, every single year we’ve seen both fundraising levels in terms of capital closed across the globe and number of funds closed incrementally creep towards those pre-GFC levels. So, I think that 2017 definitely has the potential to be one of the largest years since 2007.

Snow: Some of the largest funds—and [there are] very large funds getting raised right now—are from fairly non-traditional, almost unusual Asian entities. Let’s take a look at them. Among these funds getting raised is a Softbank fund out of Japan, which is seeking $100 billion. Is this real? Are there actual institutions around the world that are committing capital to a $100-billion investment fund?

Peavy: This is actually very real. They have closed already $80 billion, which is 80% of their target fundraise. And not only have they closed it from just one state investor, they’ve done it from multi-national corporations and other traditional LPs. They’ve raised capital from at least two known sovereign wealth funds based in the Middle East. And they’ve raised $1 billion from Apple as a corporate investor as well.

Snow: There are several Asia-based funds also getting raised that are affiliated with the Chinese government. So, you have one fund that is targeting Chinese internet investments being raised by the Ministry of Finance in China. Again, to what extent is this a regular way GP entity? And to what extent is this a really unusual, or at least unique, government-affiliated entity? Who’s investing with these groups?

Peavy: Yes. With the situation in China, it’s a little bit different from the Softbank fund in the fact that it is more China-centric in terms of their LP base. Certainly, [it’s] a little less away from the traditional GP structure that we’ve grown accustomed to hearing about from KKR, Apollo and the other large players such as Carlyle and Warburg.

Snow: I think what this shows is just the further maturation of the private equity market and the entrance of different kinds of investment entities into a market that has been dominated by a certain type of private equity entity, which is a general partner firm that manages limited partnership entities and raised successive funds.

Peavy: Currently, we are at record levels of fundraising in terms of aggregate capital sought and number of funds on the road across the world. But those numbers don’t account for, as you mentioned, maybe a sophisticated pension plan or sovereign wealth fund with the in-house teams and expertise to go out and compete directly head-to-head with these traditional GPs for the same deals.

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