First-Time Funds Get a Smaller Piece of Private Equity’s Bigger Pie

Feb 28, 2018 '

First-Time Funds Get a Smaller Piece of Private Equity’s Bigger Pie

By Luis Garcia

Private-equity investors are concentrating on larger and established firms, posing challenges for managers looking to raise their first fund.

The portion of private-equity capital flowing to first-time funds is shrinking, a trend that could make it more difficult for newly formed firms to get off the ground.

But not everything in the industry is bad news for first-time fund managers. In fact, they too seem to be taking advantage of the continuing private-equity fundraising boom.

First-time funds received $26 billion in capital commitments across 226 funds last year, compared with $36 billion across 283 first-time funds in 2016, according to a recent report from data provider Preqin Ltd. Those first-time funds represented just 6% of total private-equity fundraising during 2017, a decrease from 9% in 2016, the report said.

First-time funds’ declining share of the private-equity pie is in large part the result of an effort by many institutional investors to reduce the number of fund managers they back, industry executives say.

“LPs are aggregating more capital with fewer GP relationships, and subscale single-strategy managers are merging into larger platforms,” Michael Arougheti, chief executive of Ares Management LP, said during a conference call in mid-February to discuss the Los Angeles firm’s latest quarterly results. “I believe that these trends will only accelerate going forward.”

The private-equity industry, however, still has space for first-time funds that can offer investors an attractive option to diversify their allocations to the asset class—whether it is in a different region, sector or investment strategy, said Alan Pardee, managing partner and co-founder of capital-raising and investment-advisory firm Mercury Capital Advisors Group.

“LPs are capitalized and embracing risks in different ways,” Mr. Pardee said. “First-time funds still can be raised.”

Cove Hill Partners is one firm that raised its first fund based on an alternative strategy. The Boston firm, which closed its debut vehicle at slightly more than $1 billion last year, differentiates itself by being able to hold investments much longer than the typical private-equity fund, WSJ Pro Private Equity previously reported.

Even though established firms are grabbing a disproportionate share of the record levels of capital investors are pouring into private-equity funds, first-time fund managers do appear to be benefiting as well. First-time funds, for example, are increasing in size and raising capital faster on average, according to a Preqin press release related to the report. The release added that 73% of first-time funds that closed in 2017 met or exceeded their fundraising targets. In 2010, that proportion was 47%.

As long as private-equity fundraising remains strong, first-time fund managers likely will continue to get a lift. But with less capital going their way, those managers will have to make a bigger effort to stand out from the crowd and convince investors they are worth a shot.

Jul 09, 2024

Mercury Expands Fundraising Capabilities with Appointment of Jeff Davis as Partner, Origination & Project Management

-Mercury Capital Advisors, a leading global placement and advisory firm and a subsidiary of Investcorp, today announced that Jeff Davis has joined the Firm as a Partner based in New…

Mar 14, 2024

Capitol Meridian Partners Raises $900 Million for First Fund; Hits Hard Cap

Founder-friendly Capitol Meridian Partners invests in companies at the nexus of government and commercial markets Capitol Meridian Partners (CMP), a Washington, DC-based firm that invests in companies at the nexus…

Apr 19, 2023

Gates-backed MetaVC Partners raises $62m for debut fund

MetaVC Partners, which is backed by Bill Gates, has closed on $62 million for its debut fund to invest in start-ups working with new advanced materials. Besides Gates Frontier, Microsoft…

Mar 02, 2023

Mercury hires Glendower exec to lead on secondaries

Mercury Capital Advisors has hired an executive from Glendower Capital as partner to lead its secondaries advisory effort. London-based Devrup Banerjee joined Mercury on 1 February, according to a statement…

Nov 02, 2022

eWTP Arabia spotlights Arab-Asian collaboration at SuperReturn Middle East

Dubai, UAE: eWTP Arabia Capital, a leading Saudi Arabia and China based growth stage venture fund, is co-sponsor of SuperReturn Middle East, the leading private equity event serving the Middle East…

Jul 12, 2022

Mercury adds US secondaries advisory exec

The adviser and placement agent sees a growing opportunity in the US lower middle market, particularly in preferred equity. Mercury Capital Advisors has brought a new hire over from the…

Jul 05, 2022

Springwater Capital partners with Morningside Capital Management and LSV Advisors in a structured solution of a European portfolio of alternative assets.

Springwater, a leading pan-European special situations investment firm, received a preferred equity investment in a portfolio of European private equity assets with a value of over €100 million. Fresh capital raised will…

Feb 17, 2022

Infrastructure Managers Rake in $124B for
New Fundraising Record

Money poured into infrastructure funds at a record pace last year, powered by factors such as a post-pandemic rebound, a range of potential risk and return options and a wide…

Feb 15, 2022

Mercury Capital Advisors Boosts its US Origination and Distribution Capabilities

Mercury Capital Advisors announced today that it has added James Howe and Michael Dunham as Partners to further enhance its origination and distribution capabilities. Howe and Dunham are based out…

Dec 09, 2021

Mercury Capital Advisors Adds Masashi Hirose and Eugene Park to Growing Team

Mercury Capital Advisors announced today that it has added Masashi Hirose as Partner and Eugene Park as Principal to boost distribution and project management efforts for the firm, respectively. Hirose…

Sep 01, 2021

Gaw Capital Partners Takes Top Spot in APAC Fund Manager Ranking by PERE

September 1, 2021, Hong Kong – Gaw Capital Partners ranked first in PERE’s APAC Fund Manager Guide, a ranking based on capital raised over a five-year period, which shows the top 50 fund managers…

Jul 28, 2021

Mercury Capital Advisors Appoints Michael Ricciardi as Chairman Emeritus

Mercury Capital Advisors (“Mercury”), among the world’s elite global private fund placement and advisory firms, today announced that it has appointed Michael Ricciardi, Chief Executive Officer and Co-founder of the…

Jul 21, 2021

Mercury Capital Advisors Announces Four Senior Hires for Distribution Team

Mercury Capital Advisors today announced that it has added four senior professionals to amplify distribution efforts for the firm. Matthew Haimes, based in London, Jill Cohen and Jennifer Tunney, both…

Jul 12, 2021

10 Biggest Trends Shaping the Next 3 Decades, According to Big Investors

Institutional investors and family offices in a recent survey cite digitization, aging population and climate change as the most important trends that will shape the global economic landscape in the…

Jun 15, 2021

Investcorp partners with 17Capital to structure portfolio of alternative assets

17Capital, the global go-to source of strategic financing for investors in private equity, and Investcorp, a leading global provider and manager of alternative investment products, are collaborating to structure a…

Jun 03, 2020

Opportunity-Zone Funds Gaining Momentum

After a slow start, managers of opportunity-zone funds have been raising capital at an accelerated rate, according to Real Estate Alert’s second-annual review of the sector. Twenty-two sponsors working independently…

Apr 22, 2020

Oaktree Leads Rush of New Distressed Funds Seeking $30B

A wave of distressed debt and special situations funds has hit the market in recent weeks in response to the Covid-19 pandemic downturn, jumpstarting a segment that had dwindled to…

Apr 08, 2020

Crisis Sidetracks Fund Shops’ Equity Raises

The coronavirus chaos is taking its toll on fund managers’ capital campaigns. Operators across the country are postponing initial and final closes, or discuss­ing doing so, as investors focus on…

Mar 20, 2020

PE giants eyeing 2 opportunities amidst COVID

We talked to 14 private-equity insiders about how they’re planning to play the coronavirus turmoil. They identified 2 huge opportunities. Market chaos is creating crises and opportunities. Private-equity firms are…

Mar 20, 2020

LPs Slow Pledges to Debt Vehicles

Demand for high-yield-debt funds appears to have softened in the past year. The amount of equity raised by active closed-end vehicles is down for the first time since 2013, according…

×

By clicking on this link you will leave the Mercury Capital Advisors, LLC (“Mercury”) website and be taken to a website owned and operated by third parties. These links are provided for your information and convenience only and are not an endorsement by Mercury or the Mercury iFunds™ platform. Mercury has no control over the contents of any linked website and is not responsible for these websites or their content or availability. Mercury therefore makes no warranties or representations, express or implied about such linked websites, the third parties they are owned and operated by, the information contained on them or the suitability or quality of any of their products or services.

Accept