Data published by research firm Preqin shows that first time private equity funds are finding it hard to raise capital despite the industry reporting strong fundraising figures in the first quarter. During the quarter, first time funds closed a combined $5 billion, the lowest for that period since 2008. First time funds accounted for just 5 percent of the total $95 billion that PE firms raised in the quarter, which ironically is also the most for that quarter since 2008. Overall industry figures were boosted by an $18.4 billion funding round that private equity Apollo Global Management LLC closed in the quarter.
Investor Appetite For First Time Funds Decline
The Preqin survey found that only 19 percent of investors surveyed in December were open to investing in first time private equity funds. In 2012, 29 percent of respondents were open to first time funds.
In a statement, Ignatius Fogarty, who heads the private equity products group at Preqin said, “Despite private equity fundraising figures as a whole continuing to improve, it is undeniable that first time fund managers face a tough challenge in attracting investor capital,”. He added, “Investors still remain cautious toward allocating new capital to private equity funds and are more comfortable placing capital with larger, more experienced fund managers with a proven track record,”.
The report also found that 47 percent of first time funds that closed in the first quarter reported fundraising figures short of the targeted size. Comparatively, 28 percent of funds raised by experienced fund managers did not meet the target. First time private equity fund SwanCap Investment Management SA closed the largest round of $1.2 billion for a first time fund in the quarter but even it did not meet its planned $1.5 billion target.
First Time PE Managers Targeting $141 Billion
Preqin disclosed that a total of 641 first time managers are seeking to raise a combined $141 billion through their first funds. Of these funds currently on the road, 242 funds have raised an aggregate $25 billion via interim closes. The remaining 399 funds are yet to hold an interim close.
First time managers typically spend slightly less time in market than established managers largely because first timers target smaller funds. According to Preqin, first time funds that closed in the first quarter spent an average of 16.7 months in market compared with 17.6 months for all private equity funds.
Impact On Job Market
The data on first time private equity funds highlights the tough challenges first timers face in attracting investor capital. It shows that investors are comfortable giving money to experienced fund managers with strong track record. The cautious investor stance is not surprising. Though the first quarter numbers were bad for first time funds, the overall strong quarter for the private equity industry could have some positive spillover effects on the private equity job market.
