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By: Bailey McCann, Private Equity Strategies

At the end of June, Palico, released a survey on current trends in the industry. The online private equity marketplace polled 106 limited partners and 179 general partners between April 25 and May 27, 2016, for their views on the market. Not surprisingly, there was some divergence between LP and GP views of how things are going this year, but overall both groups expect 2016 to be another good year for private equity.

Fundraising continues to be strong. According to the survey data, over threefourths of LPs and GPs in the survey expect fundraising to meet 2015 levels. 2015 was a record year for private equity fundraising, marking a new high since the financial crisis. “We’ve seen a really strong fundraising environment over the past three years,” Kevin Campbell, Managing Director and Portfolio Manager, Private Markets at $2.7 billion DuPont Capital Management tells Private Equity Strategies. The Wilmington, Delaware-based firm considers some 400-500 private equity groups per year for investment and has a strong value orientation. Campbell says he expects the current pace of fundraising to continue, but it will be challenging for GPs to find places to put all of that money.

Even though the market for deals may be challenging, the strong fundraising market appears to be too tempting for GPs to avoid. “We’ve noticed that GPs are coming back into market fundraising for their next fund much earlier which is concerning in some cases,” adds Graham McDonald, Head of Private Equity at London-based $428.2 billion Aberdeen Asset Management. Aberdeen invests $32 billion across all alternative asset classes including private equity. McDonald says that in Private Equity Fundraising Remains Strong Despite High Prices For Assets some cases, GPs have returned to market before prior funds are significantly invested - “investors could push back on re-upping into a fund if the terms are too unfavorable and prior vintages aren’t fully invested.”

2015 was a record year for acquisition valuations in addition to fundraising. Purchase prices in the U.S. and Europe hit a record of more than 10 times acquired company cash flow in 2015. 79 percent of LPs and 75 percent of GPs in the survey expect average pricing for PE-backed acquisitions to stay the same or rise in 2016. Those high prices make it a sellers market, which could make it difficult for GPs to get the kind of low entry prices they need to make the most of all their newly raised capital.

Even with high asset prices impacting dealflow, GPs have retained the advantage in negotiations with potential investors. Private equity is still one of the few asset classes posting consistently high returns, making for a competitive environment among investors who want access to the best funds. With so many investors wanting in, GPs have been able to get rid of key metrics like hurdle rates and have renegotiated some fees.

If investors want better terms, they may have to act as a group, but Aberdeen’s McDonald says that’s hard to achieve. “LPs have never been good about acting in unison when it comes to getting more favorable terms so it is easy for GPs to pick them off and maintain the upper hand on terms,” he says. Even if LPs acted in groups, GPs seem to think they would be able to maintain control. Survey data shows that 57 percent of LPs readily believe that making demands as a group could help them, but only 34 percent of GPs agree.