Many private equity limited partners who have received strong returns on their investments in recent years are reinvesting their gains, according to a new report from alternatives data provider Preqin.

This has resulted in both more money entering the sector and managers spending less time in market and raising larger funds.

A driving force in this fundraising activity has been high levels of distributions, Preqin said. In the first six months of 2016, distributions amounted to $257 billion, more than half the total $472 billion raised in the previous year.

In 2016, 948 private equity funds raised an aggregate $378 billion, the most capital secured since the financial crisis. Fundraising exceeded $300 million for the fourth consecurive year, the report said.

Ninety-five percent of investors surveyed in December told Preqin that their investments had met or exceeded their expectations, and 48% said they planned to increase their allocations over the longer term. Concerns about asset pricing have not soured their investment plans.

Preqin noted that the average time it took a private equity fund to close had decreased over the past four years, and across all geographic regions.

Last year, Europe-focused funds were fastest to reach final close, spending an average of 14 months in market — a change in the historical trend of North America-focused funds needing the least time to close.

The latter reclaimed the top spot in the first five months of 2017, as 153 funds closed after having spent an average of just nine months on the road. This is not surprising in that 61% of investors in the December survey said they thought North America offered the best opportunities in the current market.

The average size of funds entering the market has also increased, Preqin said. Between 2013 and 2015, average Europe- and North America-focused fund sizes remained relatively level, in the $450 million to $500 million range.

In 2016, Europe-focused funds shot up to an average of $650 million. Three of the 10 biggest of these funds ever raised closed last year:

  • Advent Global Private Equity Funds VIII: $13 billion
  • Ardian Secondary Fund VII: $10.8 billion
  • Apax IX: $9 billion

In the first five months of this year, North America- and Asia-focused funds have taken in more capital than previously seen, according to Preqin, an average of $750 million and $485 million, respectively.

Three $10 billion-plus North America-focused funds that closed between January and May:

  • Silver Lake Partners V: $15 billion
  • KKR Americas Fund XII: $13.9 billion
  • Vista Equity Partners Fund VI: $11 billion

Manager Experience Counts

Preqin’s report said a fund manager’s experience directly correlated to fundraising success — all the mega-funds mentioned above were raised by experienced managers.

Since 2013, the 55% of managers that raised $1 billion or more spent an average of 12 months or less on the road, compared with 31% of those that raised less than $500 million.

Only a third of funds that brought in $5 billion or more needed more than 18 months on average to close.

While 68% of funds that have closed since 2013 have met or surpassed their target size, experienced managers have had greater success in exceeding targets, Preqin found.

It said those that had previously raised at least $5 billion most often exceeded their target size by 25% or more.

Performance Factor

Eighty-three percent of investors in the December survey said track record was a key factor they considered when evaluating a fund manager.

Of 40 managers Preqin has identified as the most consistent performers in the industry based on top quartile rankings of their funds, 47% spent less than six months on the road, compared with just 17% of all other managers.

Not only that, 68% of funds raised by these top performers exceeded their goal. Only 7% fell short of their capital target, compared with 33% of all other managers.

Furthermore, the advantage goes to the consistently top performers when raising follow-on funds. Since the beginning of 2013, new funds from top-quartile performers spent 11 months in market and secured 114% of their target.

Sixty-three percent of these closed within a year, and 70% surpassed their fundraising goal.

At present, Preqin reported, 1,931 private equity funds are seeking an aggregate $611 billion in capital commitments.

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