How Did Fundraising Look in the First Half of 2018?

The past few years have been quite good to private equity managers, with fundraising and pay reaching levels not seen in a decade (in some cases ever).  With this backdrop, Private Equity International (PEI) recently released its fundraising report for the first half of 2018.  How does the fundraising picture look?  Is private equity fundraising set up for a banner year?  Here’s a look.

The Broad Fundraising Picture

Here’s the broadest picture from the PEI report.  The chart shows a marked drop-off in activity for the first half of 2018.  The figure is a little misleading in that the 2018 figure only includes the first half of the calendar year, while the years 2012 through 2017 include the entire year.

With that said, the figure does show a relative leveling-off of activity.  Through the first half of 2018, fundraising amounted to about $125 billion, a little less than half of the approximately $275 billion raised through the first six months of 2017.  The first half of 2018 was also a little weaker than the 2016 estimate at about $190 billion.  Overall, on the fundraising front, the first half of 2018 was more like 2012 and 2015, running below stronger years including 2013, 2014, 2016, and 2017.

Also interesting is the drop-off in the number of funds closed.  For the entire year, about 640 private equity funds closed in 2017, which was a slight decline from the approximately 700 in 2016.  In contrast, about 200 funds have closed so far in 2018.  Should this trend continue, the number of private equity funds closed in 2018 will be markedly lower than in the other six years shown at 400.

Source: Private Equity International

Some Details on the Strategy Picture

The Buyout Picture

Shifting now to the strategy picture, here’s a look at the Buyout picture.  Overall, the Buyout sector – by far the largest sector within the private equity fund universe, has seen a fairly large decline in the number of funds closed, although dollar volume is in-line with what we saw in 2014 and 2016.  Through the first six months of 2018, the number of Buyout funds that have closed was about 60, compared to a year-total figure of about 180 for 2017.  The dollar volume is also down relative to 2017 at about $100 billion, compared to about $175 billion in 2017.

Also interesting is the change in regional activity of Buyout funds.  North America was strong in 2017, at about 45 percent of all Buyout fund activity.  In contrast, 2018 is not as strong as 2017 on a relative basis for companies headquartered in North America, dropping to about 35 percent of all activity.  North America’s decline has been Europe’s gain, as the number of regional focused buyout funds has increased from about 10 percent in 2017 to about 35 percent in the first half of 2018.

Source: Private Equity International

Growth Funds

The second area, presented below, is the growth fund area of private equity.  This area has experienced the largest drop-off in activity.  The number of growth focused private equity funds closed for the first half of 2018 was about 23 (annualized at 46).  This is a marked decline from the for the entire 2017 year.

Also disappointing, at least for private equity growth mangers, is the decline in dollar volume.  The capital raised through the first half of 2018 summed to about $15 billion, a fair bit below the 2018 first-half amount of about $30 billion and below all of the years shown.  We’re not seeing a recession in 2018, but it’s certainly not a private equity boom either.

Source: Private Equity International

Conclusion

Overall, private equity fundraising continues to push forward, although not as strong as the 2017 picture when comparing 2017’s first six months to the first six months of 2018.