Year in Review: Rise of ‘mini-megas’ drives U.S. fundraising past $200 bln – Quarterly Fundraising

  • Funds of $1 bln to $4.99 fuel fundraising boom
  • “Mini-megas” collectively raise $111 billion
  • Standouts include Strategic Value Partners and New Mountain Capital 

Bradley wasn’t far off. U.S. buyout and corporate finance funds raised more money in 2014 than any year since the global financial crisis, accumulating a little more than $200 billion of fresh dry powder as of mid-December, according to preliminary data compiled by Buyouts.

Unlike pre-crisis fundraising, however, when $5 billion-plus funds from firms like The Blackstone Group, The Carlyle Group and Kohlberg Kravis Roberts drove U.S. totals to more than $300 billion, 2014 was dominated by the $1 billion to $4.99 billion “mini-megas”, according to the data.

Mini-megas raised more than $111 billion in 2014, almost doubling the $62.1 billion funds of that size raised in 2013 and hurdling the record $103.2 billion they collected in 2008.

In the fourth quarter, firms such as Strategic Value Partners and New Mountain Capital closed funds that fit the “mini-mega” mold. Others, such as Siris Capital and Glendon Capital Management, will likely hold closes before the end of the year or in early 2015.

That isn’t to say limited partners had no appetite for larger funds. Apollo Global Management closed a $18.4 billion flagship vehicle in early 2014, and high-demand firms such as Hellman & Friedman, Centerbridge Partners and Vista Equity Partners closed their largest funds to date at well over $5 billion apiece in the second half.

Firms that can scale their vehicles into the mega-fund size range appear to be outliers, however, as many investors continue to voice their support for small and middle-market vehicles.

“If you go back and look at the fatigue of ‘05, ‘06 and ‘07 vintage funds, those bigger funds didn’t necessarily produce a return,” said the manager of a family office who asked not to be named. “They raised too much money to put to work effectively.”

Mid-market ticks upward

Middle-market funds continued to attract support from LPs in 2014, surpassing the previous annual total for the sixth straight year. Funds targeting between $300 million and $999 million circled $26.3 billion in commitments in 2014, an 8 percent improvement over 2013’s total.

Investors such as the California State Teachers’ Retirement System, Wisconsin State Investment Board and Illinois State Board of Investment now emphasize smaller mid-market funds as they deploy new commitments.

“We’re under the impression that there is a better return profile in the lower- and middle-market space,” Illinois Executive Director William Atwood said earlier this year. “You have the same downside risk that you do with the big and mega-market risk, but your upside is so much greater.”

Illinois joined billionaire Elon Musk in backing Valor Equity Partners’ third fund, which raised at least $390 million on a $350 million target this year. Other notable middle-market fundraisers include Z Capital Partners, which closed its second fund on $750 million in July, and Cressey & Company’s fifth fund, which held a one-and-done close on $615 million in December.

Interest in sub-$300 million funds remained steady, attracting roughly $6 billion of fresh capital for the third straight year. Notable newcomers in the space include Gauge Capital, LFM Capital and Shore Capital Partners, which closed on their hard-caps.