Limited partners see tough fundraising market for many GPs

  • Some may fall short with 2,000 funds in the market
  • Top quartile managers have easier time
  • First-time funds rare

David Fann, CEO of TorreyCove, said LPs in the private equity world are sifting through 2,000 funds, but not all off them will be raised.

“It’s going really smoothly for the best funds, but everyone else is struggling.” Fann said. “It’s not an easy slog.”

Fann said while LPs eagerly dive into the best funds, other credit-related products such as subprime loans and small company lending could offer opportunities.

Ken Lehman, managing director of Kendall Investments, said his firm may consider investing in funds “that may not have great IRRs right now”, but could prosper in the next year or two. “We try to take a longer view,” Lehman said.

Thomas Lynch,senior managing director, for Cliffwater, said even if general partners raise their fund, it’s harder to put the money to work because of high prices in the merger and acquisition market. Clearwater does invest in first-time funds, including firms that spin off from older private equity shops,

Marek Herchel, partner at AlpInvest, said his firm looks for sector funds in high growth niches, including smaller funds with differentiated sourcing models. But first-time managers are rare nowadays, with only two emerging names in the first half of 2013, down sharply from past years.

LPs said they’re interested in co-investing opportunities with new funds, as well as paying lower fees, to a certain extent.

“If you discount the fees, you may get a discounted rate of return,” Fann said. His firm encourages pre-marketing meetings to help general partners shape their message.

LPs said placement agents are more commonly used nowadays as a way for GPs to drum up more interest in their funds. About 33 percent of private equity funds used placement agents in the first half of the year, up from 16 percent five years ago, Herchel said.