A survey of investors shows most of them prefer to entrust money to a private equity house that has put some fund-raising experience under its belt.
First-time private equity funds secured $26 billion in capital commitments across 226 funds in 2017, with the number falling slightly from the level in 2016, and just 6 per cent of the industry total for last year, the lowest in 10 years, figures show.
Although private equity investors have seen more liquidity arising from record distributions in recent years, the overall proportion which will invest in first-time funds has stayed level since 2012, and most gains have been reallocated to established fund managers, Preqin, the research firm that tracks alternative investments, said.
There were 226 funds that were first-timers last year, down from 283 in 2016. First-timers accounted for 25 per cent of private equity funds that closed last year, a rise from 23 per cent in 2016.
“First-time fund managers, meanwhile, face an increasingly competitive fundraising market, and struggle to differentiate themselves and attract investors’ attention. A significant proportion of investors will not commit to them, and while first-time funds may outperform on average, investors are facing an increasing challenge in identifying the right funds for their objectives,” Christopher Elvin, head of private equity products, said.
The average size of first-time funds has soared by 36 per cent since 2010, although established funds have surpassed that growth, expanding 230 per cent.
The data also shows that 73 per cent of first-time funds closed in 2017 met or beat their fund-raising targets, up from 47 per cent that achieved this in 2010. However, among established funds, 82 per cent of them beat their targets in 2017, up from 59 per cent in 2010.
At the end of last year, 49 per cent of investors said they were prepared to put money into a first-timer, but those who said they will not invest in them rose to 41 per cent from 37 per cent in 2010.