Year in review: Rapid growth rules

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The private equity industry records nine consecutive years of growth as assets under management hit a record high

Key points

  • The private equity industry has grown rapidly over the past decade
  • Buyout funds continue to dominate private equity fundraising
  • In 2017 some 60% of private equity capital was raised by North America-focused funds
  • Fund managers are concerned about high company valuations

Private equity assets under management reached a new record as of June 2017, standing at $3.01trn (€2.5trn). This is a 9.4% increase from December 2016, and is more than twice the size of the industry at the end of 2006. Although from 2008 to 2012 dry powder levels decreased, since then the private equity industry has enjoyed nine consecutive years of growth. There was a significant rise in unrealised value between 2012 and 2013, but weaker growth from 2014 and 2015, probably owing to improving market conditions and general partners exiting investments held on to since the global financial crisis.

Buyout funds accounted for over half (53%) of all unrealised value held in private equity as at June 2017, with $1.04trn unrealised value. This is a record amount, as well as an increase of $61bn from December 2016. Unrealised value of venture capital funds is $434bn as at June 2017.

Dry powder stands at a current high of $1.06tn as at June 2017, an increase of $144bn from the previous December. Buyout funds accounted for the largest proportion of private equity dry powder, making up over half (58%) of uninvested capital. Venture capital accounted for 18% of dry powder, growth accounted for 12%, and all other private equity strategies accounted for 12%, as well. These record highs are buoyed by the strong private equity fundraising market in 2017.

In 2017, 921 private equity funds reached a final close, securing over $453bn in capital. This was the second consecutive year in which aggregate capital raised exceeded $400bn, which the industry had not seen since the 2007-08 period. Although in 2017 there was a 26% decrease in the number of funds closed compared with 2016, capital raised rose by $322bn. The industry experienced a growth in fundraising, which accounted for 60% of all private capital raised in 2017 from last year’s proportion of 55% of all capital.

“Buyout funds accounted for over half of all unrealised value held in private equity as at June 2017, with $1,04trn unrealised value. This is a record amount, as well as an increase of $61bn from December 2016”

Buyout funds continue to dominate private equity fundraising, with 189 vehicles securing 65% of all private equity capital raised in 2017. Eighteen mega buyout funds (raising $4.5bn or more in their final close) held a final close over the course of 2017 and secured over 60% ($174bn) of all buyout capital. This compares with 2016 when 11 mega buyout funds raised 41% of all buyout capital. Venture capital funds accounted for the largest proportion (45%) of funds closed in 2017 and secured $55bn in capital commitments.

In 2017, 60% of private equity capital was raised by North America-focused funds – a 10-year high. The geographic focus also accounted for 51% (471) of all funds closed, a slight decrease compared with 2016 (53%). Europe-focused fundraising also decreased in 2017 – $108bn was raised by 188 funds, a 10% decline from the record $120bn raised in 2016.

Europe stalls on venture

Although 2017 Europe-focused buyout fundraising was substantial, with 72 funds securing $79bn, the venture capital industry wavered. While 58 Europe-focused venture capital vehicles raised just $7.1bn, 101 Asia-focused vehicles raised $13.7bn. North America-focused funds dominated in the strategy, and 222 funds with a focus on the region raised $30bn.

In contrast to Europe, Asia-focused fundraising experienced a small recovery, bouncing back from a 10-year low of just 11% ($43bn) of global capital raised in 2016, to 14% ($64bn) in 2017. China-focused vehicles continue to dominate the region’s fundraising landscape, accumulating $29bn of the $64bn raised in 2017. Excluding funds with a focus on both China and India, India-focused vehicles raised $5.1bn in 2017.

private equity fundraising in 2017 by geographic focus

The private equity industry experienced an increase in capital concentration and the average private equity fund size steadily increased from $346m in 2015 to $533m in 2017. In fact, of the $453bn raised in 2017, 28% ($125bn) was secured by the 10 largest funds closed, while the 20 largest funds accounted for over two-fifths (42%) of all private equity capital raised. Additionally, there were several high-profile mega-fund closures in 2017 – including Apollo IX at $24.7bn, the largest private equity fund ever closed.

While there were fewer fund closures in 2017 than in 2016, fund managers have experienced greater success, with a larger proportion of funds having met or exceeded their original fundraising target. More than three-quarters (79%) of funds closed in 2017 met or exceeded their target, with 22% achieving 125% or more of their fundraising goal. As fundraising market conditions have improved, the proportion of funds that failed to meet their target has fallen steadily from 40% in 2013 to just 21% in 2017.

“There were several high-profile mega-fund closures in 2017 – including Apollo IX at $24.7bn, the largest private equity fund ever closed”

Some 85% of Europe-focused funds met or exceeded their target – the highest proportion of any geographic focus, while 64% of rest of world-focused funds managed to do the same. By comparison, North America-focused funds had the highest proportion of funds exceeding their target by 125% (20%), just ahead of Europe-focused (18%) and Asia-focused funds (14%).

As fundraising has become more successful it also has become quicker. On average, funds closed in 2017 reached a final close in 13 months, the shortest average time on the road since 2007, when the average was also 13 months. Additionally, the proportion of funds that took one year or less to achieve a final close reached a six-year high of 52% in 2017. Buyout funds reached a final close faster than all other private equity strategies, with 76% buyout vehicles reaching a final close in 18 months.

Known knowns

In terms of geographic focus, investors tend to have more appetite for more established markets: 42% of North America-focused funds achieved a final close in 2017 within just six months of launch, while 33% of Europe-focused vehicles did the same. By comparison, just 16% of Asia-focused vehicles did the same.

private equity assets under management over time

The latest Preqin fund manager survey indicates that investor demand for private equity has increased over 2017. Two-thirds (67%) of fund managers reported an increase in investor appetite – a 9% rise from the 2016 survey results – with just 8% of fund managers reporting a decrease. As the Asia private equity market matures, appetite from investors based in the region has increased – 50% of general partners reported an increase in demand from Asia-based limited partners, the highest of any region. However, even in the most mature private equity markets of North America and Europe, fund managers continue to see increased appetite from large proportions of investors. Furthermore, nearly half (49%) of fund managers have seen an increase in competition for transactions.

With an increasingly congested and competitive private equity fundraising market, fund managers are concerned with high company valuations. In fact, 62% of fund managers surveyed by Preqin in November 2017, identified high valuations as the biggest challenge facing general partners in 2018. Some 58% of fund managers surveyed reported that pricing for portfolio companies had increased significantly compared to 12 months ago, a 22-percentage-point increase than the recorded response in the 2016 survey.

Christopher Elvin is head of private equity products at Preqin. Preqin’s 2018 Global Alternatives Reports is available at

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