Is private equity fundraising ready to spring back to life? The industry is keeping an eye on a new effort by UK-based private equity group BC Partners, who are attempting to raise $7.6 billion by the end of 2011. It apparently marks the largest fund-raising effort in nearly two years, according to an article in the Wall Street Journal online.
Private equity funds raised just $41 billion globally in the second quarter of 2010, down from quarterly peaks of $200 billion in 2007 and 2008. Many firms have been forced to settle for lower investor commitments or simply smaller funds. Blackstone Group’s latest fundraising attempt, for example, fell 35% short of its $20 billion target for a 2008 fund.
A smaller fund can lead to smaller potential deals, since private equity funds can’t invest more than 20% of a fund in a single deal. Or, it can force funds to scale back commitments, if an investor holds more than 20% of a fund.
BC Partners may still reach their target. Their average internal rate of return among six funds averaged 41%. But they’re not taking any chances. To encourage investors, BC Partners is reportedly offering a 5% discount on their standard 1.5% management fee and 20% performance fee.
And there’s the rub. Many big investors may be close to their full allocations for private equity. Changes in market conditions may have reduced the proportion of other assets, thereby inflating the private equity portion and limiting future investment.
One thing’s for certain: industry leaders will be keeping an eye on the success of the BC Partners launch. What’s your opinion? Do you see the fundraising environment for private equity improving in the next 6-12 months? Add your comments below.
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