How’s fund raising going?
Curious to hear from experienced PE folks on this site @CompBanker" @APAE" and so forth on how they see this pandemic impacting fund raising for relatively new PE funds? How will PE dealflow at the lower and upper Middle market level be impacted? Is the golden time of PE behind us? I hear public markets investors have been getting crushed with redemption calls
Would love to hear some expert views on this
Impossible to know the impact on fundraising as the world has only been different for a couple months. From what I've seen, fundraising is "stalled" so to speak. Meaning that not a lot of meetings have been happening, but fundraising plans haven't stopped.
In terms of dealflow, a lot of deals that were coming to market or just in the market were put on hold when the lockdown hit. More and more though I'm hearing about bankers pitching deals via video chat and preparing to bring new deals to the market. Volume is way down but it hasn't completely stopped.
Back in 2008 it also felt like things were never going to recover, but then we had an incredible 10+ year run. I don't doubt this will be a similar situation. Recessions happen and the economy bounces back. This one is definitely unique as the whole world has pretty much shut down, but we're already starting to see relief (England announced hours ago that manufacturing companies should go back to work tomorrow, with a plan to get things going in the coming months).
PE is a pretty darn resilient asset class as we can continue to draw fees throughout a recession. Sure, portfolio companies suffer, but usually we can hold on through it without losing investments, even if they do trip covenants. Usually it just means marking down the investments (paper losses). There will be winners and losers for sure, but overall PE will be okay.
Not sure if this answers your questions....
Thank you CompBanker for this! How do you foresee hiring at an senior associate level to be impacted by this. I suppose the answer would be it depends but id imagine the senior associate’s salary to be a drop in the ocean from the perspective of a MM pe firm (both LMM and UMM). Thanks!
The best funds aren’t having any trouble even in the current climate. We’ve committed to three funds in the last two months and all three were one and dones. A lot of credit funds are coming out with special sits vehicles and none seem to be having any trouble fundraising. As far as public funds go our public funds aren’t facing crazy redemptions either. Maybe 100-200m net outflows for a 10b fund at most. Don’t forget that at this point public markets are almost back to peak levels.
Equity market volatility is one of the biggest drivers of PE fundraising. The biggest LPs have pre-set allocations between different asset classes, and target asset allocations. PE allocation (in $) can mostly be planned - so long as the LP has enough fund / industry diversification and accurate PE cash flow modeling. So if the public equities fall 20% in a short period of time, the PE allocation % gets above the LPs target, and they have to react - either by slowing down new fund commitments or selling secondary stakes. On the flipside, if equity markets are up 10% annually, LPs both have more money to invest and more allocation available to PE.
With equity markets back near all time highs, I'd expect the fund raising environment to be okay for the time being. What I'm hearing is right now there is a big pause. When things resume, I'd assume most activity will be existing LPs re-upping with their existing GP relationships.
How long do you think it'll remain paused for?
Everyone hit on the big parts but one thing I'll add is that it depends on what your mandate is. For example, consumer / retail PE funds are very focused on portco crisis management as they've been hit hard (obviously overgeneralizing as some segments, such as alcohol / consumer staples, have done very well). If you're a distressed / turnaround PE fund, you're probably licking your chops at all the liquidity issues companies from all sectors are facing.
In general, both co-investing and committed fundraising have slowed which is no surprise. If you were about to close a deal with co-invest, LP's probably expect a repricing / restructuring of the deal to derisk COVID concerns going forward. Again, this will vary widely depending on the sector / company.
Nobody can say for sure when things will pick back up but as the world slowly starts to get back to "normal" (which is probably different than before), I think the deal world will as well.
Why is it not a surprise that co-investing and committed fund raising have slowed. Please could you expand on this for my understanding. Thank you
Both GP and LP's are scrambling to control the current portfolio. Our LP's have been asking more questions lately because they are trying to find any real issues and understand if they have exposure. As such, they probably aren't getting too excited about another middle-of-the-road GP tell them about how much value they add when they have more pressing calls.
As the world slowly opens back up, some of the bleeding will stop but I anticipate LP's being cautious about who they invest behind. They will absolutely ask for details behind what/how GP's did/they helped portco's as this will be a good test to separate GP's among eachother. Obviously, sector dynamics/focus will play a role.
Capital Allocators has had a few guests on discussing the current fund raising environment. Great insights on there.
Sorry it took a bit to get to this, I was buried with the 'Then and Now' thread.
On the institutional side, the big thing was re-balancing. Some people in process went on pause. Several sailed through and still closed vehicles. I haven't heard about any manager downsizing their vehicles, nor LPs completely closing their pocketbooks.
Ares burnt past its $2b target for its first Special Opportunities fund and will certainly hit the $3.5b hard cap this year. That's a new strategy run by a pair of ex-Oaktree and ex-GSO guys that does public and private debt. Not sure exactly how its purview is different from the special situations strategy that had a Fund IV from 2016(?) or so.
Cornell Capital just announced the raise for Fund II last week. One Rock, Stellex, Thoma Bravo, Housatonic, Summit Partners ... have all done the same within the past month.
Established managers seem to be in really good shape. Emerging managers and lower middle market guys seem to bear the brunt of it. The former because it's harder to justify at I.C. backing the guy that already felt like more of a risk - and some really marquee names are out in the market accepting new LPs for a very visible pipeline of interesting opportunities.
In the family office space, there seems to be a lot of FOMO. If you're in good managers, you're asking how to co-invest and cherry-pick at some of these distressed or repriced deals. If you're in not-as-good managers, you're dealing with a mess. If you are primarily a direct investor, you're wishing you had a larger staff or had more primary commitments in your mix where you could lean on GPs for help.
Hey APAE thank you very much for your response! I was hoping to get your view on my personal situation. Would it be Ok if I pm-Ed you?
Consectetur quasi quo deleniti sequi error est omnis. Excepturi voluptas porro quia amet maxime autem veniam hic. Quod suscipit magni pariatur vero nostrum dolore. Nam est reprehenderit velit quos qui minus numquam. Qui quis veritatis id sunt. Labore sed laborum minus doloremque quasi id.
Et consequatur et sed ut corporis. Libero quis quos consequatur nihil eum veniam explicabo voluptas. Doloremque eum id repellendus quis mollitia a quam.
Sunt perferendis occaecati et voluptatem autem consectetur voluptatibus. Distinctio quis laudantium corrupti dolorem unde ut. Maiores dolor harum facere commodi voluptate laborum. Odio ab voluptas temporibus eos reprehenderit. Et ea delectus ea et dolorem soluta. Et eveniet quidem ipsam ut.
Delectus necessitatibus soluta perspiciatis necessitatibus. Quaerat alias ut accusantium. Aut similique incidunt consequuntur ea autem sed.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...