Will the New Year Bring New Private Equity Funds?

Jan 05, 2015 '

Will the New Year Bring New Private Equity Funds?

“Alan Pardee quoted in the WSJ”

More private equity professionals may launch their own firms in the coming year as investors look for attractive places to commit their money amid stiff competition for allocations with established managers, according to various industry participants.

“There’s a lot more comfort with spinout groups and first-time funds than at any point that I can recall [since the financial crisis],” said Tim O’Gara, founder of Chicago placement agent Shannon Advisors, which in 2014 helped raise a $272 million debut institutional fund for lower midmarket buyout firm Tower Arch Capital.

Lack of succession planning at some established firms, an improvement in exits that has allowed midtier professionals to show track records, and challenges securing allocations with veteran fund managers have all created a more receptive environment for newer groups. However, many newer groups will still face formidable challenges raising capital in an environment where more investors want to write bigger checks with fewer funds.

As institutional investors find allocations with the established top-performing shops tougher to come by, some of them may be more willing to support a new team, particularly one that has worked together within an older, larger firm.

“As investors get shut out of certain funds or don’t get the full allocation they were looking for, [they] will say, ‘If I couldn’t get into that fund, who has a similar strategy?’” said John Morris, managing director at HarbourVest Partners. - Laura Kreutzer

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