The biggest European private equity groups are rushing to raise new mega funds as they seek to tap into record demand from investors before markets become tougher.
Luxembourg-based CVC Capital Partners is attempting to raise what would be Europe’s largest ever fund – potentially more than €18 billion – as early as next year. Stockholm-based EQT, which is considering a listing later this year, is set to raise a record flagship fund at around €14 billion in 2020.
Both firms are planning to market the investments roughly a year earlier than expected, attempting to secure funds ahead of a potential economic downturn when raising capital would be harder.
Fund
Meanwhile, London-based BC Partners is expected to raise a new fund within the next 12 months, according to sources.
All three firms declined to comment and people close to the capital raising warned that targets and timings had not yet been set as discussions were continuing.
People are nervous about what’s happening in the economy. Private equity fundraising right now is a case of get out and get the money while the sun is still shining
Demand for private equity funds is being fuelled by an expectation among investors that the asset class will deliver strong returns in a low interest rate environment.
There has already been a flurry of mega funds launching in recent months, including Cinven’s €10 billion, and Advent International’s $17.5 billion (€15.6 billion). Data from Preqin shows fundraising is at its fastest pace since 2009 and the average size of funds globally is the largest it has ever been.
“Speed is undoubtedly picking up,” said a veteran fundraiser at a multibillion-euro private equity group in London. “People are nervous about what’s happening in the economy. Private equity fundraising right now is a case of get out and get the money while the sun is still shining.”
Gareth Whiley, managing partner at London-based buyout fund Silverfleet Capital, said the increase in activity was “a result of record-low interest rates but also due to investor demand as a result of the success of private equity as an asset class”.
To be able to hit the market sooner, CVC removed a clause that forces the group to have at least 70 per cent of its previous fund invested before it raises another one.
Investors in existing funds often worry that launching a new vehicle will mean they lose out to the best deals. To appease concerns, CVC has promised it will first invest the current fund and will not draw fees on the new one until it starts deploying the money.
Investors
“Private equity groups want to have a fund in the bag so they can have protection should there be a downturn and it becomes harder to raise money,” said a veteran fundraising adviser.
For now, institutional investors – from pension funds to sovereign wealth funds and university endowments – are lining up even though past returns have disappointed.
Private equity returns have dropped since the highs of the years before the financial crisis. In 2003 a fund returned on average 2.9 times the money invested, compared with two times a decade later, according to the latest analysis by Bain & Company. Prominent private equity insiders, including US billionaire David Rubenstein, have warned returns are likely to come down further.
CVC’s 2008 fund returned 2.3 times money to investors after fees, according to figures seen by the Financial Times. A fund CVC raised in 2014 had a net multiple of 1.3 times money invested by the end of 2018, which was second quartile against a Preqin benchmark of all global funds raised that year.
“CVC and EQT will have a strong fundraise because there is enough investor demand,” said an executive at a rival fund. “Their problem is more about how to please every investor that wants to get in.” – Copyright The Financial Times Limited 2019
