New research from Preqin reveals that 25 first-time funds achieved a final close in Q1 2014, securing an aggregate US$5bn, the lowest quarterly amount in the period since 2008.
This figure equates to just 5% of total capital raised by all private equity funds closed in Q1 2014, compared to 7% for funds closed in 2013 and 13% for funds closed in 2008. This is worrying news for the 641 first-time managers actively seeking to raise their first funds, targeting a combined US$141bn.
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Investor appetite for first-time funds has also declined; just 19% of investors we spoke to in December 2013 for our bi-annual investor appetite survey were open to investing in first-time funds, a notable decline from 29% of investors in 2012.
However, 20% of investors in December 2013 stated they may consider investing in first-time funds in the future, up from 6% the previous year, indicating there is potential for improvement in first-time fundraising figures.
Other Key Facts:
- Fundraising Trends: 47% of first-time funds closed in Q1 2014 failed to meet their target size, compared to 28% of funds raised by experienced fund managers.
- Abandoned Funds: During 2013, 64 private equity funds that were aiming to raise $34bn were abandoned; 57% of these funds were being raised by first-time fund managers, up from 48% of abandoned funds in 2012.
- Time on the Road: First-time funds typically spend slightly less time in market than experienced fund managers, largely as a result of raising much smaller funds. First-time funds closed in Q1 2014 spent on average 16.7 months in market, compared to 17.6 months for all private equity funds.
- Funds in Market: As of April 2014, 2,116 private equity funds are currently in market, 641 of which are first-time funds that are seeking to raise US$141bn. 20 first-time funds on the road are targeting over US$1bn.
- Interim Closes: 242 first-time funds on the road have already secured an aggregate US$25bn towards their overall targets via interim closes. However, this means 399 are yet to hold an interim close.
- Notable Funds: Although fundraising remains challenging for emerging managers, several first-time funds have recently experienced fundraising success. SwanCap Investment Management reached a final close in Q1 2014 on US$1.2bn for its debut fund, SwanCap Opportunities Fund after less than 12 months on the road.
Ignatius Fogarty, head of Private Equity Products, Preqin, said: "Despite private equity fundraising figures as a whole continuing to improve, it is undeniable that first-time funds managersface a tough challenge in attracting investor capital. Investors still remain cautious towards allocating new capital to privateequity funds and are more comfortable placing capital with larger, more experienced fund managers with a proven trackrecord. Nevertheless, there are investors that will invest in first-time funds, particularly if they are better suited to theirinvestment capabilities and needs, or offer diversified strategies. First-time funds can also be used as an alternative to thehard-to-access big brand names. While the year ahead will remain difficult for first-time fund managers, those that offer aunique investment story and desire to succeed will be the most successful in securing capital commitments."
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