PE Firms Extending Fundraising Timelines
Private equity fundraisers are becoming increasingly pessimistic about the time it will take to raise their next fund, amid a macroeconomic environment that has resulted in reduced liquidity from exits.
About 58% of GPs surveyed by Investec for its latest PE Trends study expect their next fundraise to take more than three months longer to finish than their previous one, with more than 25% expecting it to take at least six months longer.
Part of this is attributable to the recent reduction in fundraising timeline expectations during the boom period immediately following Covid, when both LPs and GPs rushed to make up for time lost due to lockdowns and a volatile market environment.
However, poor liquidity is putting pressure on the fundraising market, with GPs struggling to exit their portfolio businesses and return money to LPs, who are then unable to give new alternative commitments.
Investec reported that the tough deal landscape has resulted in an increase in failed auctions. Over the last year, two-thirds of GPs have reported more broken processes, up from 41% in 2022. This has introduced a new element of complication to exit strategy and fundraising efforts, affecting GPs’ track records.
Only one-fifth foresee the same level of growth in 2024, and 19% expect their next fund to be smaller, up from 2% the previous year.
According to the Investec study, which surveyed over 150 general partners from the U.K., Europe, and the U.S., most private equity fund managers expect deal valuations to fall in 2024.
This conservative approach to deal valuations is reflected in expectations for returns. According to the survey, over half of respondents forecast a decrease in returns over the next two years, while only 24% expect an increase.
“Our research shows that GPs are under no illusions about the challenges that lie ahead. But while the industry understands the need for pragmatism, the private equity model remains as relevant as ever,” said Kate Gribbon, head of financial sponsor coverage at Investec.
“The market may not match the extraordinary deal volumes and fundraising observed at the top of the cycle in 2021, but transactions are still being done and GPs are successfully closing fundraises,” she added.