Mon, Aug 29, 2016
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Private Equity Strategies

Dealmakers Q&A: Private Equity Fundraising Isn’t Dead Yet

Tuesday, July 23, 2013

By: Bailey McCann, Private Equity Strategies

If you read the headlines, private equity fundraising seems mostly dead. However -that’s not the case say two dealmakers. Private Equity Strategies spoke with Chris Hastings, Principal at Berchwood Partners, a placement agent and Augustine “Gus” Long, Partner at Stanwich Advisors, an independent, boutique investment bank that focuses exclusively on providing advisory and fundraising services to private equity partnerships globally about trends they see in fundraising right now.

“The market isn't like 2005-06 when the demand and capital were more plentiful, but this is still a healthier market than post the downturn,” Long says, noting that there are still opportunities provided real evidence of pedigree and experience are there.

“You're seeing a flight to larger funds, or a flight to quality in a lot of places right now, because there is a perception that with a brand name you'll have less risk. On the smaller side - funds under $2bn - you have a harder time but there is still interest in certain geographies, distressed, energy, real assets, turnarounds,” Hastings says.

Both men note that pedigree is important for first time funds. GPs that have many years of experience in all facets of private equity can still raise a fund, but that experience is key. Former CEOs or other new entrants who decide they want to start a fund without a private equity background are going to have a steep uphill climb. “I would invest with a first time fund if the suitable pedigree was there, but I think it is a lot harder, if not impossible, if they are also first time investors without an attributable track record,” Long says.

Emerging Markets

Hastings says that if the background is there, demand is strong especially in the middle to small end of the market where financing can be harder to come by. In areas like Latin America, and Africa, funds are also finding opportunities to get into growing economies early on.

“There is interest in Mexico, Colombia, and other Latin American countries. There are also interesting opportunities in Africa, and we are trying to get ahead there, we've sent some people and are working with others on the ground to build relationships and get a sense of the players.”

In these areas, fundraising and investing take on some unique nuances that investors should be aware of. Historically, especially in Latin America, privately held companies are loath to allow private equity funds to have controlling stakes, which means funds and investors need to be flexible.

“If you limit yourself to control-only stakes in Mexico or other parts of Latin America you're going to limit the universe of opportunities dramatically. But if you're willing to look at minority stakes with advantageous capital structures or effective control the opportunity set is much larger,” Long explains.

Being able to invest more than once is also important. “Particularly with respect to emerging markets, people like to see that they can recycle capital into multiple funds. Given the labor intensive nature of diligencing these opportunities, it is harder to make the case for one time investments,” he notes.

US & EU Trends

In developed markets like the US and EU, activity in secondary markets is on the rise, as disrupted cycle funds are more common, but according to Long, fundraising for fresh vintages still hold value.

“It is harder to build a well-diversified portfolio by going only with secondary transactions, but there is a very strong economic case to be made for accessing a fund through the secondary market if the opportunity is there,” he says, suggesting that both options can have a place in the portfolio.

New standards like ILPA have also made their way into the market more quietly than some initially expected. “LPs can use ILPA guidelines to get some leverage on fund terms, although that's still going to be more prevalent with LPs who are making the larger commitments. I think the fear that ILPA was just going to be collective bargaining for LPs just hasn't turned out to be true,” Long says.

Both men say that overall, firms need to show that they can execute on their core focus area if they want to keep raising money. They note that LPs looking at all parts of the globe are faced with many opportunities, and won’t have to rush to get in on good opportunities, instead, they’ll be taking a close look at principals and terms when they make decisions.

 
This article was published in Opalesque's Private Equity Strategies our monthly research update on the global private equity landscape including all sectors and market caps.
Private Equity Strategies
Private Equity Strategies
Private Equity Strategies
Private Equity Strategies


Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Strategies - The 'Holy Grail' hedge fund strategy to handle a black swan the size of World War I, Hedge funds get more pushback on terms as enthusiasm for strategy wanes[more]

    The 'Holy Grail' hedge fund strategy to handle a black swan the size of World War I From IBTImes.co.uk: To illustrate a strategic gap common to today's portfolio managers, George Sokoloff, PhD, founder and CIO at Carmot Capital, proposes an interesting thought experiment – a breakdown of

  2. Institutional investors - Investors set to increase allocation to private debt, With investment income key, Richmond retirement system faces funding challenges[more]

    Investors set to increase allocation to private debt Investors are set to increase their allocation to private debt, with 60% revealing they believe the private debt market will grow over the next 12 months, according to a new study by Elian, a leading funds services provider. 41%

  3. Investing - Hedge funds snap up banks, unload Apple, Some of hedge funds' favorite stocks are finally starting to beat the market, Einhorn's Greenlight shifts positions, Treasury yield climbs to two-month high as Fischer joins hawks, 9 stocks smart investors put their money in last quarter[more]

    Hedge funds snap up banks, unload Apple From Barrons.com: Prominent hedge funds have a newfound love of big banks, and some have a distaste for shares of Apple, regulatory filings released last week show. The filings suggest that the funds have been pivoting their portfolios in recent mon

  4. Chesapeake energy seeks $1 billion loan to refinance debt[more]

    From Bloomberg.com: Chesapeake Energy Corp. is seeking a $1 billion loan as the company battered by cratering fuel prices and credit downgrades takes a step to address its $9 billion debt load. The natural gas producer hired Goldman Sachs Group Inc., Citigroup Inc. and Mitsubishi UFJ Financial Group

  5. Institutions - Nordic pension funds magnify focus on unlisted and direct investing, building up teams[more]

    From IPE.com: As bond yields remain at low or negative levels, pension funds and other institutional investors in the Nordic region are stepping up efforts to find higher returns by adding more unlisted investments to portfolios and are expanding in-house teams in order to do this, according to new