PE managers face intense competition for capital

Private equity fund managers will need to contend with keen competition for capital this year, as a trend of steady inflows are expected to be mismatched with a rise in new launches.

A new investor survey by Preqin shows that $314.5 billion was raised by 698 funds which held a final close by the end of 2012. It is up slightly from the previous year, when $311.7 billion was raised by 910 funds. No breakdown was provided for capital allocations by region.

Preqin’s poll of institutional investors shows that 52.3% plan to invest the same amount of capital to PE in 2013 as they did last year, with 14.8% planning to slightly increase allocations.

However, there is expected to be intense competition for capital, given that there are now 1,940 private equity funds in the market targeting a total of $795 billion, compared with the 1,814 seeking money in early 2012.

The average fundraising period was 17 months for PE funds that held a final close in 2012.

North America continues to be viewed as the most attractive region for investment, preferred by 44% of institutional investors. Europe, despite ongoing economic uncertainty and market volatility, was named as favourable by 40%. Asia and all other regions captured a collective 41% of investor interest.

The regional preferences are reflected in the number and size of funds in the market. There are 388 Asia-focused PE vehicles in the process of fundraising, aiming to raise a total of $128.3 billion in capital. By comparison, 873 US funds are trying to raise $406.8 billion, and 456 European funds are collectively seeking $195.9 billion in investment.

Despite the continued preference for North American funds and enduring demand for European PE exposure, Asia is still a compelling option for investors, as evidenced by the global buyout groups which have been raising capital for the region.

KKR last year raised $6 billion for the industry’s biggest Asian PE fund to date, while Bain Capital closed its second Asia fund at $2.3 billion. Meanwhile, Carlyle Group is in the process of raising a targeted $3.5 billion for its Asia Partners IV vehicle.

The capital-raising market will be competitive this year on a global basis, due to the large number of funds in the market, notes Preqin data manager Antonia Lee.

“Fund managers will have to continue to work hard to secure capital from investors, particularly as many investors remain cautious and are looking to make new commitments on a very selective basis.”