Weak fundraising does not signal lack of interest

Weak fundraising does not signal lack of interest

Private equity funds raised USD 50 bn worldwide in Q1 2010, according to a new report by Preqin. That is slightly more than in the previous quarter but much less than they raised during the last few years (see chart).

There are basically three reasons why commitments to new funds are meagre. Firstly, private equiteers have more than USD 1,000 bn of uncalled commitments at their disposal. That means that there is still a lot of money in the market searching for investment opportunities. Also, some limited partners (LPs) may be reluctant to commit to new funds as capital calls on existing commitments are looming. Secondly, distributions from PE investments are down due to the recession. This poses an additional liquidity constraint for institutional LPs. Thirdly, many LPs are at or expect to reach their target allocation for PE and hence are unable to make new commitments. Yet, a survey by Coller Capital shows that LPs’ interest in private equity is unabated – most want to keep or even increase their allocations.