Bigger Is Better — Evening Brief – 05.28.24
Smaller participants in the private equity and venture capital industries are progressively being squeezed out by larger funds when it comes to obtaining funds from limited partners, according to new PitchBook data.
Since 2018, funds of more than $1 billion have accounted for more than 60% of total capital raised, and the amount increased to over 81% in the first three months of this year, with the number of funds amassing that capital reduced by nearly 50% year-over-year.
According to PitchBook, those numbers vary and may lessen as it uncovers smaller funds and managers in the market, but the trends towards funds larger than $1 billion, and increasingly exceeding $5 billion, continue to dominate the sector.
Approximately $295 billion was raised across private markets funds in the first quarter across 521 separate vehicles, which is comparable to the nearly $298 billion raised in the same period last year, according to the firm’s most recent Private Markets Fundraising Report
The largest share of capital raised in the first quarter came from private equity funds, accounting for 52.9%. According to PitchBook, global PE fundraising is displaying “remarkable resilience,” with the value of PE fundraising exceeding $560 billion for the third consecutive year in 2023.
That accomplishment comes despite market volatility and reduced distributions, which may limit further fundraising efforts.
In the first quarter, 110 private equity funds raised $156 billion, a 16% increase from the five-year average for the first quarter of $134.4 billion.
In the U.S., the first quarter witnessed significant raises, including $14 billion from BDT & MSD Partners, $12 billion from TPG, and $6.9 billion from The Jordan Company, enabling North America to maintain its usual dominance by accounting for nearly half of global capital raised.
In venture capital, two years of delayed exits for VC-backed startups resulted in only $29.8 billion in fundraising during the first quarter, “an extremely low amount for how large the market has grown over the past decade,” noted Pitchbook.
The research also noted that megafund closures have a significant impact on aggregate VC fund value, with a paucity of large funds in the first quarter being particularly noticeable. Only seven funds closed on total commitments of $500 million or more in the first quarter. More than 150 funds hit that milestone in 2021.
“…with interest rates likely to stay higher for longer, a drastic resurgence in exit activity seems unlikely in the next couple quarters, thus further delaying distributions to LPs that could be recycled into this vintage,” Pitchbook wrote.
“While established VCs will be able to leverage their track record and name brand— combined, Andreessen Horowitz, New Enterprise Associates, and Tiger Global have closed approximately $13 billion thus far in the second quarter of 2024, for example—most global LPs will continue to view venture funds with a cautious eye.”
The research also stated that a large amount of dry powder posed a problem to VC fundraising, with more than $700 billion remaining in VC funds globally.