Forbes.com

Strong Exits and High Demand Propel Private Equity Fund-Raising

General partners setting out to raise new funds in 2015 encountered some of the best conditions they had seen in years.

By Hugh MacArthur, Graham Elton, Dan Haas, Suvir Varma and Carl Evander

Published on March 24, 2016
min read


This article originally appeared on Forbes.com. General partners (GPs) setting out to raise new funds in 2015 encountered some of the best conditions they had seen in years. With cash distributions from exits continuing to run well ahead of calls on previous commitments limited partners (LPs) had made for a fifth consecutive year, abundant fresh capital enabled most GPs to hit or exceed their fund-raising targets. Funds are also raising capital more quickly, on average, than in any year since the height of the last private equity (PE) cycle nearly a decade ago. As we explain in Bain & Company’s Global Private Equity Report 2016, successive years of strong cash distributions supported LPs’ capacity to plow capital back into PE across every region of the world in 2015 (see figure). Since distributions of cash returns first surpassed calls on prior LPs’ commitments in 2011, PE funds funneled more than $650 billion to LPs through mid-2015—nearly $300 billion more than LPs sent back to meet call obligations, leaving a sizable amount available to back new funds just to replenish PE allocations. The strong exit markets since 2010 and the torrent of returns they have generated at a time of flattening yields have only whetted LPs’ appetites for more PE. The attraction of all that capital LPs have been eager to recycle kept 318 global buyout funds alone on the road at the end of the year, aiming to raise $247 billion—the largest amount of buyout capital sought since 2008 and the greatest number of fund sponsors ever. GPs offering funds of all types and across all regions shared broadly in fund-raising success. Funds are closing faster, and the share of those that hit or exceeded their goal was higher in 2015 than at any time since the precrisis boom of 2007. Among buyout funds, fully 40% closed in six months or less. Of the five largest buyout funds to close last year, all hit or exceeded their goals, and each was substantially larger than the fund that preceded it. Three of these funds achieved their final close within eight months of their launch date. So strongly has the supply-demand balance for new funds tipped in favor of GPs that PE firms are testing ways to reinforce fund fees and terms that had softened to the advantage of LPs in the wake of the global downturn. Hugh MacArthur, Graham Elton, Dan Haas and Suvir Varma are leaders of Bain & Company’s Private Equity Group. Carl Evander is a principal in Bain’s Private Equity Group.

This article originally appeared on Forbes.com.

General partners (GPs) setting out to raise new funds in 2015 encountered some of the best conditions they had seen in years. With cash distributions from exits continuing to run well ahead of calls on previous commitments limited partners (LPs) had made for a fifth consecutive year, abundant fresh capital enabled most GPs to hit or exceed their fund-raising targets. Funds are also raising capital more quickly, on average, than in any year since the height of the last private equity (PE) cycle nearly a decade ago. As we explain in Bain & Company’s Global Private Equity Report 2016, successive years of strong cash distributions supported LPs’ capacity to plow capital back into PE across every region of the world in 2015 (see figure).

2016-global-private-equity-report-fig-01-04_embed

Since distributions of cash returns first surpassed calls on prior LPs’ commitments in 2011, PE funds funneled more than $650 billion to LPs through mid-2015—nearly $300 billion more than LPs sent back to meet call obligations, leaving a sizable amount available to back new funds just to replenish PE allocations. The strong exit markets since 2010 and the torrent of returns they have generated at a time of flattening yields have only whetted LPs’ appetites for more PE.

The attraction of all that capital LPs have been eager to recycle kept 318 global buyout funds alone on the road at the end of the year, aiming to raise $247 billion—the largest amount of buyout capital sought since 2008 and the greatest number of fund sponsors ever. GPs offering funds of all types and across all regions shared broadly in fund-raising success. Funds are closing faster, and the share of those that hit or exceeded their goal was higher in 2015 than at any time since the precrisis boom of 2007. Among buyout funds, fully 40% closed in six months or less. Of the five largest buyout funds to close last year, all hit or exceeded their goals, and each was substantially larger than the fund that preceded it. Three of these funds achieved their final close within eight months of their launch date. So strongly has the supply-demand balance for new funds tipped in favor of GPs that PE firms are testing ways to reinforce fund fees and terms that had softened to the advantage of LPs in the wake of the global downturn.

Hugh MacArthur, Graham Elton, Dan Haas and Suvir Varma are leaders of Bain & Company’s Private Equity Group. Carl Evander is a principal in Bain’s Private Equity Group.