Private equity managers hit the road in quest for $1tn

Private equity managers aim to raise close to $1tn in new cash this year but the competition to attract fresh capital is especially fierce.

The 2019 fundraising race has begun with a record 3,749 private equity funds on the road looking for money in January, up 63 per cent on the same month a year ago, according to Preqin, the data provider.

Investors have shown an almost insatiable appetite for private equity since the 2008 financial crisis but there were some signs of cooling interest last year as the amount of cash raised globally fell to $432bn, down 23.7 per cent on the record $566bn gathered in 2017.

Just over half the new money raised was directed to the 50 largest funds that closed last year, creating a squeeze on the fundraising efforts of smaller players.

The 10 largest funds together attracted almost a quarter of the new money with Blackstone, Apollo and Carlyle leading a drive to create vast buyout funds that are redefining the boundaries of the private equity industry.

Cinven, Apax, Permira and Advent are also set to join the race to create mega-funds with a minimum of $10bn in assets.

The concentration of inflows into vehicles run by the industry’s biggest players is a trend that most observers expect to continue.

Institutional investors looking to make large allocations need to partner with the biggest private equity managers. This trend also suggests concern is growing about the outlook for returns.

Private equity managers are paying record prices to complete deals and periods of strong fundraising historically have been followed by weaker returns. Investors may be spoilt for choice with the number of managers touting for business but they will have to choose carefully.

About a fifth of the funds that closed in 2018 failed to reach their fundraising target and that number could increase this year because of the proliferation of competitors in the market.