Some of this year’s most interesting private equity funds

Private equity had a tough row to hoe in the fundraising market of 2023.

Activity slowed for a second consecutive year. At the end of September, North American funds raised $390 billion, down 11 percent from a year earlier, according to Buyouts data. Fund closings declined more sharply: 43 percent.

The reasons why are widely known. Many LPs were out of money, originally due to overallocation but with weak distribution flows increasingly playing a key role. GPs reacted by keeping their offerings open longer, which in time often meant cuts in targets.

The evidence suggests these challenging demand-supply dynamics will persist in 2024.

While much of this year’s fundraising news was gloomy, there were bright spots. For one, LPs clearly remain bullish about the future of private equity and other alternative assets.

And there were sponsors, big and small, old and new, that succeeded in their fundraising – despite the challenging environment – typically because of top-tier returns and strategies that speak to fresh opportunities, even in a downturn.

In the following, Buyouts highlights a few of the private equity funds and themes it believes stood out in 2023.

Biggest yet

Like many private equity funds this year, Blackstone’s latest secondaries vehicle was raising capital for a long time: almost two years. This did not, however, lead to target-trimming. On the contrary, the fund closed in January at $22.2 billion, well above its $13.5 billion goal.

As a result, Strategic Partners IX is the largest secondaries pool ever raised. This positions the strategy, led by global head Verdun Perry, at the forefront of an anticipated surge in secondaries deals, maybe as soon as next year.

One and done

In a year of greatly extended fundraising timelines, the rapid one-and-done close was pretty rare. But that is what Seidler Equity Partners did with its eighth mid-market buyout offering. In less than 90 days, the fund held a single close in March, securing $1.25 billion.

While it required two closings, Clairvest performed a similar feat. Launched in April, Clairvest Equity Partners VII, a minority investor in mid-market opportunities, reached a $1.2 billion cap in under four months.

Female-founded

Emerging managers are a rich source of diverse GPs. An example is Vertu Capital, created by Lisa Melchior, a former OMERS Private Equity executive. On March 8, International Women’s Day, Vertu completed its inaugural offering at more than C$300 million ($225 million).

There are other women-led first-timers in the market. They include Coalesce Capital, founded by Stephanie Geveda; Emerald Bridge Capital, founded by Cay Freihofer; Grafine Partners, founded by Elizabeth Weymouth; and L2 Point Management, founded by Kerstin Dittmar.

Top tier

Many of the funds profiled in this story persevered in this year’s tough capital raising because of the robust track records of their sponsors. Representative of the trend is Genstar Capital, which wrapped up a new flagship mid-market buyout fund in April, collecting $12.7 billion, ahead of an $11 billion target.

Genstar Capital Partners XI’s five predecessor flagships were earning an aggregate net IRR of 32 percent as of September 2023, sources told Buyouts.

Making a comeback

Wildly successful in recent years, growth equity has risen alongside historic innovation in the economy. Today, however, the strategy is slowly coming back from a market reset triggered by the 2022 collapse of public technology values.

None of this dampened the spirits of TA Associates as it raised one of this year’s largest growth equity vehicles, TA XV, closed in June at $16.5 billion against a $15 billion target. In a less competitive space, this provides the firm with capital for value opportunities.

Mega funds

Clayton Dubilier & Rice in August completed its latest flagship buyout fund at $26 billion, making it North America’s largest (so far) in 2023. Significantly, Clayton, Dubilier & Rice XII also exceeded its target at a moment when several other mega offerings have not.

One in four funds wrapped up below target in this year’s first three quarters, according to Buyouts data. Another big GP that beat the odds was Warburg Pincus, closing a 14th flagship growth fund in September at $17.3 billion.

Complex opps

Private equity firms with experience in turnarounds, restructurings and other special situations may be in their element in today’s market. Uncertainty and high interest rates are driving bankruptcies and debt defaults, portending more complex investing.

It was for this reason propitious that KPS Capital Partners in October secured $9.7 billion for KPS Special Situations Fund VI and KPS Special Situations Mid-Cap Fund II, topping by 36 percent the amount obtained by their predecessors.

Sustainability

Last year was a banner year for fast-emerging sustainability strategies, led by Brookfield Asset Management‘s $15 billion debut energy transition vehicle and TPG’s $7.3 billion debut climate vehicle.

In 2023, there were more such funds with sponsors large and small. KKR completed its second impact fund in November, raising $2.8 billion, while Sandbrook Capital, founded by ex-Riverstone partners, wrapped up an inaugural climate infrastructure offering this month at its $1.5 billion cap.

The long hold

BDT & MSD Partners, formed this year in a high-profile merger, is a long-duration firm, building on the pioneering deals of Byron Trott’s BDT & Company. A family and founder-oriented merchant bank, it will soon close BDT Capital Partners Fund 4 after raising more than $13 billion.

Another pioneer in long-term investing, Altas Partners, led by former Onex executive Andrew Sheiner, also closed a third offering in June, bringing in $4 billion.

GP staking

On December 30, 2022, Blue Owl Capital’s Dyal Capital reaffirmed its position as the market’s largest GP stakes investor by closing a fifth fund at a record $12.9 billion.

This year, there were additional milestones, including the arrival a major new player, Hunter Point Capital, which has collected $2.66 billion for a first-time fund. Though still open, Hunter Point Capital Fund I is already one of the 10 largest GP stakes pools.