Advent’s Global Co-Head of Limited Partner Services Johanna Barr and MVision founder Mounir Guen sat down with Real Deals for the first of a four-part series of podcasts focusing on all things fundraising. 

State of the Market - Listen here

Private equity fundraising has soared over the last decade and managers are sitting on record amounts of dry powder. According Preqin data quoted in Bain & Company’s latest Global Private Equity Report, buyout funds alone raised $361bn (€329.59bn) in 2019, the highest annual total on record. Almost 70 per cent of these vehicles reached their targets within a year.

Behind the impressive headline numbers, however, the fundraising market is more nuanced and complex. Although more capital is pouring into buyout funds overall, fewer GPs are benefitting as LPs consolidate GP relationships. Bain & Company analysis showed that while successful firms could grow the size of successor funds by more than 50 per cent, and close within six months; firms that weren’t at the top table took more than two years to close successor funds that were only 10 per cent larger than their predecessors.

Advent’s global co-head of limited partner services Johanna Barr and MVision founder and chief executive Mounir Guen sat down to decipher these nuances and share their insights into market trends at a recent podcast recording session hosted by MVision in association with Real Deals.

Here are some of the discussion highlights:

The right timing

LPs are focused on “core” GP relationships as the bedrock of their private equity programmes and will assign resources accordingly when these managers come to market. A number of these “core managers” have been returning to the road well within the typical five-year time span, which has meant that the fundraising window for managers outside this select club has narrowed. A mid-market manager that ticks all the boxes can ironically find itself stuck in a prolonged fundraising cycle if it comes to market when the LP base is at capacity diligencing the funds of “core” GPs.

Co-investment: thought required

Co-investment has enabled investors to simultaneously take more control over their capital and reduce private equity fee costs. Given the growing appetite for co-invest it can be tempting for GPs and LPs to put the cart before the horse. LPs can spend too much time assessing co-investment offers and terms, and too little time scrutinising the actual underlying performance. GPs, meanwhile, can end up offering co-invest to close commitments without understanding what value an LP can bring a as a co-investor. Co-invest brings additional flexibility to the table, but the best way to avoid disappointment on both sides is to make sure that fundamentals, performance and alignment remain the primary decisive factors in fundraising decision making.

Rapid fund closes take a long time

The six-month “launch to hard cap” is the ultimate fundraising outcome for any manager, but although top managers are closing vehicles within these time periods the reality is that the fast fund close takes months of preparation. Fundraising and communicating with investors has in fact become an ongoing process. LPs are much closer to portfolio company performance and will be constantly up-to-speed on earnings and team dynamics. When funds do come to market, therefore, LPs are not starting their diligence from scratch, but simply topping up on already extensive current knowledge. Given that it is the quality managers who are closing the fastest, it is no surprise that these are the funds with the highest re-up rates, and thus the funds with investor bases that already up-to-speed and ready to commit.

Click here to listen to the full podcast