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DiMeo Schneider & Associates

Investment Manager Research | Market Commentary | Private Markets

Private Markets Winter 2020 Update

February 26, 2020

In recent years, the amount of capital raised by companies in private offerings has more than doubled that of companies raising capital in public markets. Recent years have seen the widest disparity between the two since 2008 as the development and availability of private capital has grown1. Performance of the asset class has followed, as seen over the past 15 years. Private Markets returned 13.5 percent as compared to a 9.3 percent returned by S&P5002. The combination has certainly fueled a trend market participants witnessed as the quantity of capital raised remained high adding to an already record level of dry powder that needs to be invested over the prevailing investment periods. In many cases, we saw these trends proliferate within the larger end of the market as the “mega funds” continued to get larger while capital raising and deal activity within the lower middle market continue to be less efficient.

Private Equity
According to Preqin, global fundraising for Private Equity (PE) reached $595 billion in 2019, increasing approximately 227 percent over the last decade from the $182 billion recorded in 2010. Despite the shift over the past decade, fundraising during 2019 actually declined five percent compared to 2018 and was also below the $628 billion raised in 2017. Intra year fundraising was strongest during the fourth quarter as managers closed on $178 billion of capital. This was less than the $249 billion raised in Q4 of 2018, but still marked the second highest quarterly inflow over the past six years. The number of private equity funds in market at the beginning of 2020 stood at 3,524 funds targeting $926 billion compared to 3,465 funds targeting $946 billion in the beginning of 2019. Further, the number of funds closed during the year was 1,316 relative to the 1,790 funds closed in 2018 and 2,398 closed in 20173. This, along with the dollars raised, signals an increase in average fund size and naturally translates into funds having to acquire larger companies or transact on a greater number of deals.

There continues to be high demand and competition for capacity within the most highly sought after managers. Globally, the amount of time spent fundraising by PE funds continues to reflect strong demand as 34 percent of the funds closed in 2019 spent less than six months in the market as compared to 26 percent of the funds closed in 2018 and 27 percent of that in 20174. Specifically within U.S. buyout, the average close time was 11 months and for all PE funds, 12 months; much less than that of 17 months and 16 months, respectively recorded in 2018 and 20175.

The chart below highlights the market share of capital raised over the past decade. We continued to see the bulk of capital raised by the largest funds, a trend that continued and even expanded during 2019. To further support the trend of proliferating fund sizes, the number of funds in the U.S. more than $5 billion in size more than doubled in 2019 with 15 funds raising a total of $162 billion.

Click here to read the rest of our Private Markets Winter 2020 Update.

1 SEC; “Harmonization of Securities Offering Exemptions”, June 2019
2 CA Modified Public Market Equivalent (mPME) replicates private investment performance under public market conditions. The public index’s shares are purchased and sold according to the private fund cash flow schedule, with distributions calculated in the same proportion as the private fund, and mPME NAV is a function of mPME cash flows and public index returns; Time period: Jan 2005 – June 2019
3 Data from Preqin’s Private Capital and Venture Capital Fundraising and Deals Update; 2019 reflects first nine months of the year while 2017 and 2018 reflect full years
4 Data from Preqin’s Private Capital and Venture Capital Fundraising and Deals Update; 2019 reflects first nine months of the year while 2017 and 2018 reflect full years
5 Pitchbook – 2019 Annual US PE breakdown published on January 8th, 2020

 

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