BERLIN Feb 28 New private equity fund managers
will be hard-pushed to raise funds, as even the most experienced
and successful buyout firms find investors have become more
selective in the firms they trust with their money.
As private equity fund managers courted potential investors
at the industry's annual gathering in Berlin this week, it was
clear aspiring managers faced stiff competition from established
players, themselves finding fundraising more challenging in the
aftermath of the global financial crisis.
"It's really tough for a first-time fund. You need to
identify a differentiated strategy, don't come out with
something that 100 funds are already doing," Mark Hoeing, a
director at Commonfund Capital, a manager of pension fund and
endowment money that invests in private equity, told the
SuperReturn conference in Berlin.
There are 264 buyout funds seeking a total of $232 billion,
up significantly from the 236 funds seeking a total of $181
billion at the start of 2012, market research firm Preqin said.
Such competition leads to private equity investors
consolidating their relationships with funds and trying to pick
a few winners in any particular strategy rather than placing
multiple bets in the same area of the market, Hoeing said.
Even some of the industry's most illustrious firms are
feeling the heat.
"It's going to be a tough fundraising for us I'm sure,
although people like what we have done and the market looks
promising. It's going to be tough for the big funds," Marc St
John, head of investor relations at CVC Capital Partners Ltd,
told the conference.
CVC, which was founded in 1981 and is seeking 9 billion
euros ($11.8 billion) for its latest buyout fund, had a 2008
10.8 billion euro European fund valued at 1.26 times its
investors' money and a 2005 6 billion euro European fund valued
at 1.75 times their money as of the end of September, according
to the Oregon Public Employees Retirement Fund, an investor.
HAVES AND HAVE-NOTS
Five years on from the 2008 financial crisis, a clearer
picture is emerging in the minds of investors of fund managers
that are capable of delivering returns even through a downturn.
Money is piling into such managers at the expense of laggards.
"(Amid fund managers) there is this group of decent
performers, but not good, where investors are making a very
difficult decision not to re-up (renew commitments) and you see
that pressure reflected in the ultimate fund sizes," said
Michael Sotirhos, senior investor relations managing director at
Blackstone Group LP, the world's largest alternative
But even those able to raise funds may end up making less
money for themselves as private equity investors demand a break
on fees levied to manage and invest money.
"Limited partners (investors) clearly want to see terms that
are better than the last fund, they clearly want to see how your
fund compares with (other) funds," said Martin Dunnett, managing
director of investor relations at Warburg Pincus LLC.
Formed in 1966, Warburg Pincus is fundraising for the
largest private equity fund in the market, targeting $12
Some private equity fund managers may fail not just because
of a poor record but because they have failed to stand out in an
era of high sophistication, where managers can boast great
resources, a targeted strategy or a specific sector niche.
So-called middle-market funds, which typically target
smaller deals than the big buyout funds, may be particularly
vulnerable if they are generalists and their recipe can be
"There are probably a lot of middle-market buyout funds in
the U.S. that won't raise another fund," Commonfund Capital's