Fund target misses grow in Q3 amid lengthening timelines

A bigger fraction of private equity funds are missing their targets as sponsors log ever-longer amounts of time on the road.

One in four funds wrapped up below target in the first three quarters of 2023, according to Buyouts data. That is up from roughly one in five vehicles during the whole of last year and 2021.

In the years prior to 2022, it was commonplace for GPs to significantly step-up targets so that the size of a new flagship’s capital pool would be larger than its predecessor. In today’s slower market, with strong GP demand matched against weak LP supply, this is less of a sure thing.

Many sponsors reacted to tough supply conditions by keeping their funds open longer, hoping to wait out cash-strapped investors. As time wore on, and one or more extensions were granted by LPs, some GPs elected to complete fundraising, even if this meant coming shy of a vehicle’s target.

There were several illustrations of the trend in the third quarter. Carlyle, for example, closed its eighth flagship buyout offering in August at $14.8 billion, Buyouts reported, below an initial target of $22 billion. This followed a nearly two-year period of marketing.

Similarly, Apollo Global Management closed a 10th flagship buyout fund in July at $20 billion, below an initial target of $25 billion. In this case, a decision was made not to raise capital beyond a 12-month marketing span, according to the firm’s Q2-2023 earnings call.

It is likely there will be more such examples in subsequent quarters. That is because fundraising timelines are continuing to lengthen.

Last year, GPs logged a substantial amount of time on the road, taking an average of 15 months to wrap up funds, above recent annual averages. (This 2022 average is higher than the one formerly reported by Buyouts, owing to the removal of low-information funds from the data sample.)

In the first three quarters of 2023, timelines extended further, with sponsors taking an average of 18 months to get their offerings to the finish line. As previously reported by Buyouts, this includes vehicles that surpassed their targets.

While a relatively bigger share of funds were missing their goals from January through September, it should be noted that the same was true for over-performers. Almost one-third of funds closed above their targets, up from 28 percent last year and 30 percent in 2021.

Examples include this year’s largest capital raiser to date, Clayton Dubilier & Rice’s 12th flagship buyout fund, closed in August at $26 billion, ahead of an initial target of $20 billion.