Higher interest rates and uncertainty about the future of markets has made private equity and venture capital fundraising the pits so far this year. If the trends continue, 2024 will be one of the worst for those asset managers in several years.
Through the first half of 2024, PE and VC firms globally raised $365.75 billion in new capital, according to data from S&P Global Market Intelligence and Preqin. At that pace, the total amount raised will be about $731 billion, roughly 20 percent less compared to the $919.27 billion raised in 2023.
If the forecasts are accurate, 2024 will be one of the worst by that metric in several years. The industry has raised at least $779 billion every year since 2016 and as much as $1.11 trillion in 2021.
The number of funds closed is also on track to be down significantly. Through the first half of the year, private equity firms closed 704 funds, suggesting the firms raised the amount of money they were seeking. At that rate, about 1,400 funds will close in 2024, the fewest in a year since 2012. And many more funds have been launched in recent years. There were 5,796 closings in 2021, 4,482 in 2022 and 2,590 in 2023.
Still, fund closings are not necessarily a bellwether for investor appetite for PE and VC strategies and fundraising. Some funds might be extending their fundraising period. And investors are still interested in new funds, especially those specializing in different asset classes or strategies.
Right now, private equity firms have $2.62 trillion in capital committed to them, which is more dry powder than ever before. Current attitudes about markets and the mountain of dry powder are a combination that has caused new fund launches to slide. There were just 365 new PE and VC funds launched globally in the first half of 2024, down 47 percent compared to the first half of 2023.
Assuming there are little more than 700 new funds launched in all of 2024, that would be another dramatic dip compared to years past. There were 2,942 new funds launched in 2019, 3,237 in 2020, and more than 4,300 in 2021. Even as interest rates rose and the sentiment toward equity markets shifted, there were still 2,647 new funds launched in 2022 and more than 1,300 launched last year.
In uncertain and troubled markets, investors still allocating to private equity and venture capital often turn to the most established (and largest) general partners. In some cases, even huge funds that have closed this year were oversubscribed. The EQT X fund, a fund sponsored by EQT Partners and EQT AB (the publicly traded entity) that invests in North American and European companies across sectors, closed at $23.6 billion and was oversubscribed by $536 million.
TJC raised a $6.85 billion fund oversubscribed by $850 million. CVC Capital Partners raised a $6.8 billion fund oversubscribed by $300 million. And Hamilton Lane raised a $5.6 billion fund oversubscribed by $600 million. Although it wasn’t oversubscribed, Silver Lake Technology Management and Silver Lake Financial’s Silver raised a $20.5 billion fund, the second largest so far this year, according to S&P Global Market Intelligence.
Even while public equity markets have gone up, asset managers must continue to raise capital and do business while profit margins in the industry thin. But lucky for the alternative investment managers, limited partners are investing more in their asset classes and — if their investing is any indication — see a brighter future than they did a year or so ago.
“Sentiment at large listed private equity firms suggests a gradual pickup in M&A and IPO activity later this year, which may bolster fundraising efforts,” an S&P Global Market Intelligence report said.
