Back to School: Fundraising slows in Q3, though post-crisis record still in reach

Private equity has been eyeing the annual fundraising record this year, but Q3 looks to be a stumbling block on 2017’s path to potential glory.

Research firm Preqin reports that 181 private equity funds closed last quarter, raising a total of $95 billion — 31 percent less than Q2’s historic aggregate of $138 billion, raised by 256 funds. The Q3 figure is preliminary and should rise by up to 10 percent, but even that would represent a significant pullback.

Still, 80 percent of funds met or exceeded their target and dry powder has reached a record $942 billion as of September.

One pool alone, Apollo Investment Fund IX, accounted for about one-fourth of total fundraising, with a $24.7 billion close. That’s an all-time record for private equity, and it may not stand for long: Three funds in market are on pace to raise even more. They are Softbank Vision Fund, targeting $100 billion; China Structural Reform Fund, targeting 350 billion renminbi ($53 billion); and China State-Owned Capital Venture Investment Fund, targeting 200 billion renminbi ($30 billion).

Christopher Elvin, Preqin’s head of private equity research, observed that the new megafunds could elbow out emerging managers, who “will have to work even harder to appeal to institutions and attract capital.”

Overall, buyout fundraising fell 44 percent to $66 billion, from the record $95 billion raised in Q2 2017. The third quarter tends to be a time of diminished fundraising, while the last three months of the year are typically the most active, as managers tie up loose ends.

Six secondaries funds closed in the third quarter on $5.4 billion. Twenty-five secondaries funds raised a total of $29 billion so far in 2017, matching the previous full-year fundraising record set in 2014, Preqin said. Additionally, the industry is continuing to diversify and specialize. Forty-four secondary funds in market at the start of the fourth quarter are targeting a total of $31 billion: of these, 37 are private equity secondaries, five are real estate secondaries and two are infrastructure secondaries pools, Preqin said.

The total for the year so far stands at $338 billion, an 18 percent improvement on the $286 billion mustered in Q1-Q3 2016. So 2017 should still surpass last year to set a new post-financial crisis record, and could conceivably break the all-time mark of $415 billion, reached in 2007.

Update: This story was updated with information from Preqin about private equity secondaries fundraising.

Action Item: Read Preqin’s Q3 Fundraising Update here.

Leon Black, chairman, CEO and director of Apollo Global Management, speaks at the Milken Institute Global Conference in Beverly Hills, California, on May 2, 2016. Photo courtesy Photo courtesy Reuters/Lucy Nicholson