Private equity fundraising on average may be down this year, but the biggest firms, including Blackstone, Apollo, and KKR, are bringing in far more money than last year.
Blackstone, for example, managed $941 billion in assets as of June 30, up from $684 billion a year ago, according to the latest private equity report from Ernst & Young. Much of that increase can be attributed to capital inflows in the second quarter this year, when fundraising activities in the overall PE market were flat. The second quarter was one of the best in Blackstone’s fundraising history, the report added. Carlyle’s assets also grew from $276 billion in the second quarter of 2021 to $376 billion in the same period this year. Ares saw its assets grow from $248 billion in the second quarter last year to $334 billion in the second quarter of 2022. KKR, TPG, and Apollo have all seen positive asset inflows into their funds during the same period.
“There’s a [measurable] disconnect between what some of the largest firms in the market are experiencing and what’s happening in the market overall,” Pete Witte, EY Global Private Equity Lead Analyst, wrote in the report. “When many of the large public managers reported Q2 earnings, they saw [assets] increase despite a market environment [in which] many were taking write-downs on their portfolios — the inflows they were seeing were sufficient to outpace the mark-to-market declines.”
Overall, fundraising is down, not surprising given the markets. Private equity firms raised a total of $125 billion in the third quarter, down 13 percent from a quarter before, according to the report. So far this year, PE firms have received $386 billion, down 8 percent from the same period in 2021, the report added.
For most middle- and lower-market PE firms, the sluggish fundraising environment is due in part to the muted exit activities amid the slowdown in initial public offerings. The report said that if exit channels remain closed in 2023, even the biggest PE firms could face significant challenges in fundraising.
But Witte added that the fundraising pressure on big private equity firms will continue to be ameliorated by capital inflow from retail investors, most of whom are high-net-worth individuals increasingly eyeing the private markets. As much as 20 percent of the PE industry’s new money is from these retail investors, who tend to “favor larger managers that have invested in those channels,” he wrote.
Blackstone’s Real Estate Income Trust, for example, has amassed $70 billion in assets from wealthy individuals since its inception in 2017. Apollo also launched a $15 billion private equity fund in August, targeting retail investors who want to gain exposure to private markets. KKR also started offering the Health Care Strategic Growth Fund II to retail investors in September. All of these initiatives are signaling that the larger PE shops are making “inroads into the retail market” and will potentially face fewer fundraising challenges next year, according to Witte.
“There is really a bifurcated market right now, which is favoring the larger managers,” Witte told II in an interview. “Retail is making up more and more of incoming asset flows for the private equity industry as a whole. The larger managers [are the ones] who have gone out and invested in those channels over the last two, three, and five years.”
