Amidst a challenging fundraising market, signs of a “flight-to-quality” phenomenon have emerged in the private equity sector. Second-quarter fundraising fell 17.4% YoY to $241.58 billion, while the number of funds in the market dropped 50.3% YoY in Q2.
These stats indicate that limited partners, facing liquidity challenges due to slowing distributions, direct capital towards a smaller group of established fund managers. Larger and renowned private equity firms are favored, seen as safer options, per Bart Molloy of Monument Group.
Preqin’s report also highlights the trend, as limited partners focus on re-investing with familiar fund managers.
Successful ‘brand name’ GPs are expected to increase overall fundraising share.
In recent deals, H.I.G. Capital LLC’s affiliate plans to acquire audiobook publisher RBmedia from KKR & Co. Inc. The Carlyle Group Inc. is acquiring Evolution Funding Ltd., a UK-based motor finance platform. Goodwater Capital LLC secures over $1 billion across its funds. Bansk Group LLC closes its first investment vehicle, Bansk Fund I LP, at $800 million.
The trend towards quality-driven investments has implications for limited partners and private equity firms. Larger and reputable funds attract more capital commitments. Investors seek security and familiarity amidst uncertainties, favoring established fund managers and known GPs with a strong track record. Building trust in the private equity industry is crucial.