Evening Brief – 03.11.24
Debunked?
Hamilton Lane, an alternative investment management and advisory firm, aims to dispel industry beliefs, particularly about the seemingly gloomy fundraising landscape.
In its 2024 Market Overview, the firm concedes that fundraising remains difficult, but the situation is not as bad as the headlines portray. The 2023 figures indicate that it will be the seventh-largest fundraising year in history. According to the research, the largest funds outperformed and are predicted to continue to dominate.
The investment base is also expanding, with more retail and high-net-worth investors joining. According to Hamilton Lane’s separate Private Wealth Survey, approximately 75% of respondents intend to raise their allocation compared to last year.
The team found that, at a time when the institutional fundraising market is weak and there is a disparity between the amount of capital GPs aspire to raise and what they raise, there will be an even greater emphasis on reaching the private wealth channel.
Fundraising is down almost 35% from peak levels, marking the second year in a row. Levels have returned to where they were in 2017, although the firm notes that the industry is larger than it was before, having tripled in size over the prior decade.
Last year, the number of new managers and funds decreased compared to 2022. The number of new managers in 2023 exceeds that in 2021, a peak year for fundraising. Following that, in 2022, fund target sizes were not exceeded for the first time in 10 years. In fact, the 2022 fundraising effort was the most unsuccessful in the previous 20 years.
The survey of GPs discovered that the new funds in 2022 and 2023 closed at the hard cap rather than the target size, although a greater number reported closing at their hard cap in previous funds. They also discovered, after merging data from different research providers, that the amount of time it takes to close a fund increased from 2022 onward, with the average time period being 18 months, or nearly what was witnessed in 2012.
Hamilton Lane found that the industry is going through a multi-year era of more concentrated expansion, more difficult fundraising, and internal difficulties at many firms, like the challenges that the venture capital industry faced after the dot.com bubble burst. However, the firm remains optimistic that GPs will weather the uncertainties, particularly if history is any guide.