More than 1,900 private equity funds are currently seeking capital from investors, an all-time record, as demand for the asset class soars, according to Preqin.
The private assets data firm reported that some 1,908 funds were seeking an aggregate $635bn (€583bn) – also a record amount – from investors in the first quarter of 2017.
The figure included the Softbank Vision Fund, which is targeting $100bn from investors interested in technology companies. If successful, it would be the biggest private equity fund ever.
However, there was also a record amount of cash waiting to be deployed, Preqin said: $842bn was ready for investment at the end of Q1.
Christopher Elvin, head of private equity products at Preqin, said even when the largest fundraisers were discounted, managers were seeking money in a “saturated market”.
He argued that the figures showed “the private equity model is working and, in a low interest rate environment, the asset class will continue to appeal to investors looking for high absolute returns and portfolio diversification”.
Nearly $1.5trn has been returned to investors since 2013, Elvin added, while Preqin’s estimate suggested that investors would have received a record amount of cash back from their allocations in 2016.
“Despite the competition for investment, the majority of limited partners [LPs] are very liquid as a result of continuing distributions and are looking to maintain, if not increase, their exposure to the asset class,” Elvin said.
Vicky Williams, managing director at consultancy firm Cambridge Associates, told IPE: “There is a lot of money chasing fewer deals at the top end, which is pushing up prices. There are assets at the top end, of course – otherwise managers wouldn’t be raising money – but they are relying more on taking public companies private, rather than other traditional private equity deals.
“We try to look at the mid-market sector, where it is less competitive, and you have the opportunity to pay less for assets.”
Williams – who has led private equity investments at BP, British Airways, and Shell pension funds in the UK – said managers were striking a careful balance between accommodating existing investors and bringing in new LPs as demand rose.
“Sovereign wealth funds and pension funds want big tickets,” she said. “That can be hard to accommodate.”
In some cases, large investors can see their desired allocation ‘scaled back’ to accommodate others – even in the biggest funds. Increasing the size of the private equity fund is often an option, but Williams said big investors could see their target allocation reduced, by 10-20% at most.
“Private equity is very relationship-based,” Williams said. “Having said that, with larger funds it’s still hard to get the size of allocation that you want. General partners are very mindful of their existing LPs, but there can be pressure on the size of allocations when a manager is trying to expand its range of limited partners, either by geography or type.”
As well as the Softbank Vision Fund – set up by the founder of Japanese telecoms and technology giant Softbank, Masayoshi Son – three of the five largest funds in the market in Q1 were Asian, including the CNY200bn (€26.6bn) China State-Owned Capital Venture Investment Fund. This helped take the number of Asia-based funds and their aggregate target capital past the equivalent figures for European funds.