Private equity fundraising slowed somewhat in the third quarter in the absence of mega buyout fund closing during the quarter. According to data provided by research firm Preqin, private equity funds that held a final close during the quarter pulled in $73 billion, the lowest quarterly amount of capital raised since the third quarter of 2011 when $66 billion was raised. Despite the disappointing overall fundraising figures, first time PE funds had a good quarter as improving market conditions prompted investors to be more generous towards emerging managers. First time private equity funds captured 9 percent of the capital raised during the quarter, an improvement over 7 percent in the second quarter and 5 percent in the first quarter.
Q3 A Seasonally Weak Quarter
Christopher Elvin who heads the private equity products division at Preqin says that the third quarter of the year is typically a quieter one for the industry. He says there is a good chance that fundraising may pick up again towards the end of the year as there are seven mega buyout funds currently in the market seeking an aggregate $56 billion.
The Preqin data shows that the real estate fund Lone Star Fund IX was the largest private equity fund to close in the quarter. It held a final close on $7.2 billion during the quarter. Real estate funds that closed during the quarter raised $16.6 billion in total. Buyout funds raised the most capital during the quarter. A total of 37 buyout funds closed during the quarter, securing an aggregate $30.8 billion, well below the $63 billion raised by 49 buyout funds in the second quarter.
Weak fundraising was witnessed both in North America and Europe. During the quarter, 91 North America focused funds that held a final close could muster only an aggregate $33 billion, down from $80 billion by 137 funds in the second quarter. Europe-focused funds raised $25 billion in Q3 compared to $40 billion in Q2. Overall, the $73 billion raised for the third quarter is sharply lower than the $143 billion raised in Q2 and $111 billion in Q1.
About 25 percent of funds that closed in Q3 did not meet their fundraising target, while another 25 percent barely hit the target. The remaining 50 percent of funds that closed during the quarter managed to exceed the fundraising target.
Blackstone the Most Active Private Equity
A separate report by data provider Dealogic shows that Blackstone, private equity investors, topped the list for the number of deals as well as the value of deals through the first nine months of the year. Blackstone’s deals totaled $21.5 billion during the first nine months, ahead of second placed Carlyle Group which spent $16.4 billion and KKR which made investments of $10.3 billion during the same period. Blackstone was also the busiest private equity doing 35 deals in the first nine months compared to 30 deals for KKR and 25 for Carlyle Group. Among Blackstone’s prominent deals this year is its $5.4 billion purchase of industrial products maker Gates Global.
Relevance to Job Market
The fundraising numbers for the third quarter are clearly disappointing though it is not a complete surprise given the strong numbers reported in the first two quarters. Despite the weak third quarter numbers, it appears that the underlying sentiment remains positive for the private equity industry as the Preqin data shows that a record 2,205 private equity funds are currently in the market trying the exploit the favorable fundraising conditions and seeking an aggregate $774 billion. This compares to 2,098 funds at the start of the year that were looking to raise $733 billion. Given these mixed signals and the expectation of a pickup in fundraising towards the end of the year, the third quarter weakness may not have much of an impact on the job market.
