Looking to 2018 – A PE Fundraising Outlook

Jeff Eaton of Eaton Partners discusses his confidence in the almost 10-year bull market run in private equity fundraising, and some of the global risks moving forward.

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Looking to 2018 — A PE Fundraising Outlook 

Jeff Eaton, Eaton Partners:
I’m generally pretty bullish. I tend to be conservative about these things. We clearly have to take into consideration the fact that we’ve had a close to 10-year bull market run now in private equity fundraising. So, there’s always the risk that we’re due for a recession. And we do have some things to worry about on that front. What’s the impact of Brexit going to be? North Korea? Assuming none of those things work out as badly as they could, I’m pretty bullish. That’s for a number of reasons. One, we continue to have a low interest rate environment, which is good for both the public markets and also for alternatives, as in investors seek higher-returning investments.

That said, there are some things to be worried about. I mentioned a couple of the macro things. There’s a lot of competition. On a more micro level with specific fund managers, the fundraising market is very crowded. In certain areas, there have not been a lot of realizations. Think of energy—no one has sold much in energy. Investors are maybe over-allocated to a sector like that.

I will tell you that we’re seeing investors move down in deal size. What that means is more of a focus on the lower middle market. I’m talking funds in the $300 to $750-million size range. That’s an area where multiples are lower. There’s been a lot of money raised for the bigger funds, which create an exit opportunity for a lot of these smaller companies or smaller company-focused managers. So, we continue to see a lot of interest there.

Are there any geographies outside NA on which you are especially bullish?

Eaton: North America’s going to continue to be the staple of most LPs’ allocations. That said, we’ve gotten much more bullish on Europe, for instance, than we have in the last couple of years. There are a lot of reasons to avoid Europe, if you think about it. Not even two years ago, we were talking about the Greek crisis. There was concern that the Euro wasn’t even going to survive. If you guys recall, a couple of years ago, there was a lot of talk in our world about [whether] there were even going to be Euro-denominated funds in the future. People have gotten past that issue. Clearly, that wasn’t a big issue. Greece stayed in the EU—we didn’t have that issue. Then, we had Brexit. People worried about that. What’s the ramification of that? People have gotten through that. Then, all of a sudden, LPs woke up and said, “Oh my gosh, I haven’t allocated to Europe, which is one of the largest economies in the world, for several years. I’m under-allocated.” So, we’re very bullish on Europe, primarily in the middle-market buyout space.

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