Back So Soon?

October 20, 2021

Line chart showing average years betweeb U.S. buyout firms fundraises. Chart subtitle: In 2011, U.S. buyout firms waited an average of 4.6 years between fundraises, however that period has shortened to slightly above 3 years over the past decade. Chart description: Y-axis shows Avg. # of Years Between Fundraises for U.S. Buyout Firms, ranging from 0 to 5. X-axis shows years from 2011 to 2021. Line decreases from 4.6 in 2011 to 3.2 in 2021. Chart source: PitchBook as of September 30, 2021.

Over the past decade, U.S. private equity firms have returned to market sooner and sooner. The fundraising environment for these organizations remains attractive due in large part to strong performance and the persistent gap between private and public market valuations. Furthermore, the current robust dealmaking climate, both in terms of platform investments being made and potential add-on activity throughout the period during which portfolio companies are held, means that managers are both investing their funds more quickly and holding additional capital in reserve. These factors have resulted in more frequent fundraises.

This dynamic of accelerated capital deployment introduces incremental risks for private equity investors, including increased vintage year risk with the potential for greater return dispersion throughout an economic cycle. Moreover, more frequent fundraising could put stress on a private equity firm’s team, both with respect to the investment professionals leading deals and the operational resources executing value creation plans. Finally, more frequent fundraising, if not accompanied by shorter hold periods, will require private equity firms to return to the market more regularly with less realized performance, as potential gains stemming from recently deployed capital will be largely unrealized.

The trend of private equity firms deploying capital more quickly and returning to market sooner puts pressure on limited partners to continuously think strategically about portfolio construction. Thoughtful, consistent investment pacing that is supported by a robust go-forward pipeline of compelling fund opportunities will help to mitigate many of the aforementioned risks. Additionally, a deliberate approach will allow limited partners to prioritize opportunities in which they have the most conviction, gain access to those funds, and capture the outsized return potential of private equity investments.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

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