Fundraising Roundup Q2 2017

Preqin statistics indicate that we are in a new golden era for private capital fundraising, not deals.

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Fundraising Roundup Q2 2017

David Snow, Privcap:

Hello and welcome to Fundraising Roundup. I’m David Snow, CEO of Privcap. Today, we’re joined by Ryan Flanders of Preqin. Ryan, welcome to Privcap. Thanks for being here.

Ryan Flanders, Preqin:

Thank you, David.

Snow: Let’s start by looking at Q2 2017. Private equity continues to be on a tear as far as fundraising, but if we look more broadly at just private capital—the collection of asset classes that your firm tracks—[it] is generally raising a ton of capital. And one might say we are in another golden era of private capital—the term “golden era” being used previously in the 2007 period when private equity was a huge deal–maker on Wall Street and a real force.

So, what is behind the surge in interest in private capital strategies generally right now?

Flanders: I think if you look at private capital, private equity, private credit—there’s just been significant inflows. The defined benefit plans have a significant gap in terms of funding their liabilities, so they’re looking for yield.

They need to put capital to work in places where they can find great risk return—higher returns—and that seems to be the private markets across the board, whether you’re looking at real estate, infrastructure, debt, or the belle of the ball: private equity.

Snow: So, private equity is the belle of the ball in that, of all the strategies—which are all doing fine as far as fundraising goes—private equity and especially the largest private equity firms are just raising an incredible amount of capital. Again, especially the largest private equity firms. One thing from your statistics that I was told by your team is that the final numbers for Q2 don’t even include what could be one of the largest private equity funds ever raised: a fund from Apollo. The final numbers are not in Q2 so, once that fund closes, there’s another $20 billion or so to throw onto the pile.

Flanders: It’s a lot of capital. And when you look at the deal-making environment, the capital is, we could say, struggling to go to work.

We’re seeing continuous build-up in dry powder, but the interest remains high from the institutional investor community. I think the private equity shops believe that they can put this money to work once they find a little bit of certainty within Washington and throughout the geopolitical global environment; I think they feel like the money can go to work, so they’re going to raise it.

Snow: That’s an important point—and we are certainly in a golden era of fundraising, but it can’t be said that we are in a golden era of private equity deal-making, because especially the larger deals are just not materializing at a pace that would justify the record amount of dry capital that’s been raised. Back to fundraising: you predict that 2017 will beat 2008 as far as the best year ever for private capital fundraising. The statistics from Preqin show that, again, in the first half of 2017, we’re only within a 10% difference of where the first half of 2008 was, and yet there is evidence that 2017 is accelerating as a private equity fundraising year. For the first time ever, there are more than 3,000 private capital funds in the market at the same time seeking capital, according to Preqin. Why is that an important threshold—the 3,000 number?

Flanders: Sure, and take that a little bit further: there’s also $1.1 trillion out there being chased to raise capital. So, couple that with the institutional interest in the space—the allocators continue to want to pile money into the private markets. You’re seeing significant outflows in hedge funds. That money is not sitting on the sidelines, it’s oftentimes pivoting over to a more illiquid strategy, whether that be private equity, real estate or private debt.

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