Analysis of the performance of private equity markets in North America and Europe in the first half of the year suggest 2017 is shaping up to surpass even last year’s records, as private equity (PE) firms have been raising more capital than at any point since 2007.
PitchBook’s latest PE & VC Fundraising Report notes that: “Funds based in North America and Europe garnered $212.6 billion in commitments from limited partners across 214 vehicles through August 1—on pace for a 24% increase in value from the already stellar 2016.”
Additionally, it notes that 2017 is on track to attract $40bn in VC (venture capital) commitments, while the year has already seen the largest PE and VC fund closures of all time through the Apollo Investment Fund IX ($24.7bn) in the US – a buyout fund – while in Europe a new record was set by CVC Capital Partners closing its seventh buyout fund at €16bn ($17.95bn)
The challenge for investors is, perhaps, where to invest all the new money raised. PitchBook’s data suggests that the combined so-called “dry powder” across the two regions hit $738.7bn as of the end of 2016, which is higher than at the end of the last two fundraising cycles it saw in 2007 and 2008.
Reasons for the rush to invest in PE include the continued outperformance of the asset class relative to public markets, the low yields available on credit, and “lackluster performance by other alternatives such as hedge funds.” Limited Parterships (LPs) are recycling distributions back into the aset class, and in the US, the number of publicly traded firms remains below the 1996 peak, which further incentivises capital to chase returns through the private markets, PitchBook said.
Another trend noted is that the new capital being committed to PE and VC funds is being focused into the largest ones, valued at $5bn or more. Some 19.8% of funds committed, as per the data, have gone to this size of fund so far in 2017, according to PitchBook. Also driving the push for size is the recognition that it simply takes more money in order to buy out public companies – for example, the S&P 500 price/earnings multiple has risen from about 12x in 2012 to about 24x this year.
In turn, the issue of valuations of the largest publicly traded companies has also increased the appetite for PE funds that target the mid-cap spectrum. Some 105 funds with between $100m to $500m in commitments have closed this year, PitchBook said.
The venture capital markets also continues to attract record sums committed, PitchBook continues.
“Venture fundraising in Europe and North America is well on pace to make 2017 the fourth consecutive year with more than $40bn raised across all vehicles. Moreover, the tally may approach last year’s record $51bn figure when final numbers are calculated. Through July, $27.5bn has been raised across 165 vehicles, a number that will likely lead to a year-over-year decrease in the number of funds closed as LPs continue to consolidate commitments across fewer managers. That decline in number of funds has been offset by some of the largest funds we have ever seen. In June, NEA raised the largest VC fund ever – its $3.3bn New Enterprise Associates 16 – and in Europe there have already been two vehicles closed this year on more than $750m (Rocket Internet Capital Partners SCS and Atomico IV), only the second time in the past decade that more than one such fund has been closed in a single year in Europe.”
And in another sign of the strength of the market, PitchBook notes that 2017 could become the strongest year on record since 2008 for first time fundraisers.
“Our data shows that both 2016 and 2017 were dominated by funds in California, representing 4 1% a nd 5 2% o f total first-time funds, respectively. That said, London saw the largest first time funds raised in both years.”
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