Analysis: Drowning in re-ups, LPs urge GPs to push fundraising into 2023

Some LPs are asking their trusted GPs to “pump the brakes” on fundraising and think about pushing their upcoming fundraising processes to 2023. And some GPs are heeding the advice, according to several sources who spoke anonymously to Buyouts.

LPs have been contending with a fundraising market that is being driven by a constant stream of re-ups, or GPs bringing back subsequent funds, at a pace that is much faster than ever before. Not only are firms raising follow-up funds faster than ever, but they are raising larger pools and many of them are creating new products to take up even more LP allocation.

“Re-ups are overwhelming the pipeline,” a family office LP said. “The last 18 months have been nothing but re-ups and people coming back to market exceptionally quick on the venture and buyout side.

“It makes it harder to do new things by the very virtue of, if you’ve got a strong re-up calendar, and you’re pleased with your managers, or most of them, it doesn’t allow you to do a lot of new things,” the LP said.

North American GPs last year raised the most capital since 2019, pulling in nearly $475 billion across 854 buyout, growth, venture and other PE vehicles, according to Buyouts data. That was a 19 percent increase from 2020, and the highest tally except for 2019.

The old fundraising cycle had GPs coming back with new funds every two to four years, according to an LP consultant. Now, some GPs, especially on the venture side, are coming back within a year of closing the last fund.

“Normally those would be hard to review and approve for clients,” the consultant said. “Performance has been so good that they’re taking up a lot of the existing, or potential, allocation.”

LPs trying to keep up with managers they like are maxing out their private equity allocations in the first half of the year. For example, one LP said their 2022 allocation will likely be full by Memorial Day, with a little capital left for highly desired managers they know are coming to market later this year.

This is creating a dynamic where big LPs who are always interested in forming new relationships and finding the next great firm are not able to look beyond their existing portfolio. Because the pace of re-ups is so busy, LPs have little room or time to explore new things.

To get into an LP’s portfolio, a fundraising GP must supplant an existing manager.

The factors are making it tougher for new managers or even those established shops looking to expand their fund size by expanding their LP base. “Even if you get their attention, the question is if they actually have a wallet they can open this year. We’re talking to a number of our GPs asking them to accommodate a 2023 close,” the family office LP said.

According to the consultant: “It’s just hard to get time and attention and take away potential allocation from existing relationships that have performed well.”