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PE's frosty fundraising environment drives dearth of closes

The number of vehicles to wrap up fund raising during the first quarter suggests total funds to close this year could fall by half, according to PEI data.

Getting a fund over the line is proving no mean feat in 2023.

Private equity funds raised $163. 9 billion in the first quarter, down nearly 19 percent from the equivalent period last year and 35 percent from Ql 2021, according to Private Equity International data.

LP capital is becoming more concentrated across a smaller number of vehicles with the number of funds closing also plummeting. Only 204 did so in the first quarter, putting this year on track to finish well below the 1,615 closed across the whole of last year and 2,356 the prior year.

"The period we are entering at the moment is similar to what we saw following the Global Financial Crisis; there was, and now is, a flight to home-markets and a flight to quality," Niklas Amundsson, a Hong Kong-based partner at placement firm Monument Group, told PEI.

"Consequently, first-time-managers and managers in emerging markets will be the ones not closing at all. However, for most established managers in developed markets, they will continue to be supported by existing investors and close funds. These funds may not all meet their original targets, so some managers which have been used to increasing their fund sizes may be frustrated by the experience."

Asia-Pacific's share of fundraising dropped below historic levels in the first quarter. Funds targeting the region closed on just $2.2 billion, representing only 1.4 percent of global capital raised. By comparison, the region took 8.3 percent of capital raised across 2022, and 13.3 percent in 2021.

LP appetites for the region have been dented in no small part by China's private equity slowdown. Funds targeting the region's largest market taking longer to raise capital thanks to geopolitical tensions, regulatory uncertainty and lengthy pandemic disruption.

"Last year, the average fundraising timeline globally took closer to 17 months -this trend has continued into 2023, where it has now become the norm to apply for fundraising extensions, especially for emerging managers and managers operating in markets facing macro headwinds, such as China," Amundsson said.

"Hence, there are currently a lot of funds out there, still looking to hold their final close. These are not necessarily all failed fundraises, in terms of the dollars raised - they have just taken longer to complete."

Buyouts accounted for 51 percent of capital raised during the first quarter, in line with prior years. Secondaries, meanwhile, represented an unusually high proportion- 19 percent- thanks to Blackstone's $22.2 billion close on Strategic Partners Fund IX - the largest sum raised for any strategy over the period. This was followed by Permira's $17.8 billion Permira VIII.

As of 21 April, funds in market were seeking approximately $1.24 trillion between them. Of this, Asia-Pacific funds were targeting $131.5 billion, compared with just $105.4 billion for Europe. North America was seeking

$502.3 billion.

Eight funds were seeking at least $20 billion each, including CVC Capital Partners IX (€25 billion), Apollo Investment Fund X ($25 billion) and Hellman & Friedman Capital Partners XI ($23 billion).

"I would expect a pick-up in final closes between now and the end of the year, as most of the funds that are currently under fundraising extensions will come up towards their final close deadlines, which again includes a lot of China funds," Amundsson noted.

"Having that said, this will be somewhat offset by new managers, who were originally looking to close towards the end of the year, following the new normal applying for fundraising extensions. Although, we also see the trend of GPs being more patient in terms of launching their next fund, focusing on generating DPI either prior or in tandem with a launch, often through secondary solutions."

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