Longer timelines tell the story of private equity fundraising in 2022

Fundraising timelines last year were the longest since 2010, when private equity was recovering from the financial crisis.

At first glance, last year’s private equity fundraising results suggest the industry might have overcome some knotty challenges.

With $528 billion raised across the North American market, capital inflows were high by historical standards, according to Buyouts’ Fundraising Report 2022, published this week. Inflows were also not far off from the $535 billion secured a year earlier.

But when you dig deeper into the details, another story – a story that probably resonates with GPs and LPs alike – emerges.

For starters, while inflows were substantial, they began to drop-off after the first quarter. A robust $152 billion was collected in Q1 2022, perhaps reflecting a spillover from the giddy heights reached in 2021. By the fourth quarter, however, activity had fallen to $122 billion.

The decline tracked a key shift in demand-supply dynamics. Economic uncertainty, prompting a nosedive in public market valuations, left many LPs overallocated thanks to the denominator effect. Investors were also cash-poor because of weaker exit markets, which dried-up distribution flows.

As 2022 progressed, these factors led to tighter supply, putting a damper on what was an otherwise busy market. GPs were quick to recognize the change. “It is getting harder out there,” Blackstone president and COO Jonathan Gray said in the firm’s second-quarter earnings call.

With LP supply more difficult to come by, the pace of capital raising began to slow. Many GPs kept their offerings open longer, hoping to wait out overstretched investors. As the months wore on, some began requesting fundraising extensions.

This is evidenced in time spent on the road. In 2022, GPs took an average of 11.2 months to close their funds, according to Buyouts data, up from the 8.2 months averaged in 2021. In fact, fundraising timelines last year were the longest since 2010, when private equity was recovering from the financial crisis.

Longer timelines help explain the sharp decline in fund closings. In all, 988 buyout, venture capital, growth equity and other PE vehicles were wrapped up in 2022, down 29 percent from a year earlier, and marking the lowest number of closings since 2017.

Another reason why inflows were relatively hefty last year was the priority many LPs gave to re-ups with large incumbents. Like everyone else, big, brand-name GPs were spending more time on the road, but their journey was eased somewhat by well-established relationships with top investors.

A focus on large incumbents – especially those who unveiled offerings before 2022 got underway – likely contributed to much bigger capital pools. The average fund size jumped to $640 million last year, the highest in more than a decade.