Total fundraising in private capital markets – covering debt, equity, real estate and other fields – is likely to remain high for 2018, defying early thoughts that the pace of 2017 could not be sustained, a research firm predicts.
While “significantly fewer funds” closed last year compared to the position in 2017, the total raised - $757 billion – was on a par with that in 2016. If this amount rises by a further 10 per cent, as expected when more data rolls in, the figure will be one of the strongest in recent times, Preqin said in a report.
Private capital markets have swelled in recent years, drawing in money from high net worth individuals, family offices and other entities. This is a result of how the illiquidity premium attached to these assets attracts investors dissatisfied with low bond and equity yields in an ear of ultra-low interest rates. There have been some concerns, however, that with a record $1.2 trillion of unspent capital, the private assets class could struggle to digest new money. So far, most wealth managers who have spoken to Family Wealth Report say there are some concerns, but do not yet see a major headache, in part because the sector of privately-held firms is growing.
“Funds seeking to become the largest ever private equity, venture capital, real estate, infrastructure and secondaries vehicles are all currently in market – in all, 17 funds are each currently seeking $10 billion or more from investors. This seems likely to increase the divide between the top and bottom ends of the market; at a time when investors are concerned about the prospect of a market correction, many will be seeking to invest with firms they have invested with before,” the report’s authors said.
A total of 1,733 of private capital funds closed last year, 28 per cent down from the number in 2017; the $757 billion raised last year is down from the record of $925 billion raised in 2017. The 10 largest funds raised $241 billion – about 30 per cent of all targeted capital, showing how the larger players are dominating much of the sector.
Buyouts
One of the busiest areas of private equity activity is in buyouts, and Preqin data also showed that a total of 5,106 buyout deals were announced through 2018, an all-time record, building from the previous record of 4,829 seen in 2017.
The total value of these deals also rose to reach $456 billion - close to the $460 billion seen in 2015, and may surpass that figure because Preqin expects these figures to rise by up to 5 per cent as more information becomes available. Nonetheless, 2018 remains some way off the all-time record deal values seen immediately prior to the global financial crisis a decade ago: 2007 recorded $700 billion in deal making from 3,877 deals.