Lean Times for New PE Managers

Private equity fundraising is strong overall, but Preqin data shows that few investors are taking chances on first-time managers.

(April 5, 2013) -- Fundraising for first-time private equity managers has hit its lowest point since the financial crisis, according to Preqin data.

For the opening quarter of 2013, 28 private equity funds that reached final close were from first-time managers, out of a total of 129 closed funds. While these emerging managers closed 22% of total private equity funds, they only raised 6% of aggregate capital.

"Private equity fundraising in the first quarter of 2013 was relatively robust, with the total capital raised expected to be at similar levels to Q1 2012," said Helen Kenyon, a senior manager at Preqin. "First-time fund managers, however, struggled to attract significant levels of investor capital in the quarter … Though this is concerning news for managers seeking to raise capital for their first fund, many investors remain open to investing with emerging managers, with 46% indicating that they will invest, or will consider investing, in first-time funds in 2013."

A full half of the investors Preqin polled in December 2012 said they would not invest in first-time managers, while 39% had plans to do so. The survey showed investors' attitudes towards newcomers had become more positive since the close of 2011, when just 18% planned to allocate to them.

From a fundraising perspective, two of the most successful emerging-manager led funds to close in the first quarter were Geneva Star One ($250 million) and NorthEdge Capital Fund ($319 million), which beat its target by $15 million. 

This data dovetails with a number of other surveys and research papers indicating institutional investors' preference of late to allocate into the private equity establishment. In February, another set of Preqin data showed investor interest in large to mega private equity buyout funds had picked up sharply. Likewise, the average size of secondary private funds at their close has nearly doubled in one year.

Established managers may well have a good year ahead for fundraising: only 14% of the investors Preqin polled said they plan to commit less capital to private equity in 2013 than they did in 2012.