GPs closing funds in Q1 spent record amount of time on the road

Sponsors took an average of 13.4 months to reach the finish line, well above annual averages stretching back to the financial crisis.

In a clear sign that things are tough in private equity fundraising, GPs in the first quarter logged a record amount of time on the road.

Sponsors closing funds between January and March took an average of 13.4 months to reach the finish line, well above annual averages stretching back to the financial crisis, according to Buyouts data.

Longer timelines are a key indicator of a slow market. Last year, an LP dry spell, caused by overallocation issues and weaker exit markets, led to a reduced capital raising pace. Many GPs kept their funds open longer, hoping to wait out cash-strapped investors. As the months wore on, some began requesting extensions.

Not surprisingly, firms took an average of 10 months to close funds in 2022, the longest in more than a decade.

Extended timelines help explain the recent sharp drop in North American private equity fund closings. In 2022, 1,064 vehicles were wrapped up, down 28 percent year over year, while in the first quarter, 149 vehicles were closed, down 49 percent.

First-quarter illustrations of the time-on-the-road phenomenon are not hard to identify, even among funds that were quite successful.

Blackstone’s Strategic Partners IX, closed in January at $22.2 billion – the largest secondaries pool ever raised – was in the market for almost two years. While this perhaps owes in part to Blackstone keeping the fund open to accommodate LP demand, a slowdown in capital raising in 2022 is probably another factor.

Longer timelines can result in challenges for sponsors. They may take resources away from dealmaking and portfolio management. At a time of uncertainty, when attractive opportunities are often on tap, extended fundraising might also deprive a GP of available firepower.

In addition, the longer capital raising goes on, the more likely fund targets will come under pressure. Several prominent firms that recently dialed back expectations on targets appear to have been influenced by timing.

Apollo Global Management expects to bring in less for its latest flagship than the $25 billion targeted. In a closing this year, it projects a tally “in the low-$20 billion range,” co-president Scott Kleinman said in May. Apollo Investment Fund X, which as of March had secured $16 billion, looks to have been in the field for 15 months.

Similarly, Carlyle is planning for “a lower buyout fundraising outlook,” CFO Curt Buser said last month. Its latest flagship, Carlyle Partners VIII, which as of March had accumulated $14.4 billion, was launched two years ago with a $22 billion target.

In 2022, sponsors were having an easy time of it reaching fund targets, despite the onset of tough supply conditions. Eighty-nine percent either met or beat targets, up from prior years, according to Buyouts data.

If the first quarter’s time-on-the-road average is maintained in 2023, these robust target-hitting numbers are unlikely to be repeated. Revised forecasts by firms like Apollo, Carlyle and TPG instead suggest a potential downward trend.