Private equity fundraising update - H1 2023

As widely reported, the fundraising landscape in the first half of 2023 has been challenging for many GPs. The market has remained choppy as overall financial conditions remain difficult with many GPs only achieving successful fundraising outcomes after longer fundraising timelines (and extensions thereto). In addition, target fund sizes have come under pressure, with prominent GPs adjusting their expectations downwards to reflect the market dynamics.

Notwithstanding these challenges, according to Buyouts Insider data, the average closed fund size of private equity funds in the first half of the year was $692 million, surpassing annual averages from the past decade. However, according to Private Equity International, overall, global private equity fundraising fell to $315.5 billion in the first six months of the year, declining by a fifth compared with the same period last year and only 508 vehicles held final closes, down 48 percent from H1 2022.

A continuing trend behind the slowdown is the constraints facing investors in terms of both available capital and time resources, although, we note that more recently it seems that the so-called "denominator effect" has eased as public market prices begin to recover.  As a result, LPs are primarily allocating their capital to established relationships over new ones. This preference for existing partnerships has allowed some GPs to achieve fundraising goals, even in the face of market volatility. Indeed, we have seen certain investment strategies (including healthcare, tech and impact/ESG) have bucked the trend of slow and difficult fundraises.

We are also aware of some GPs that have chosen to delay their fundraising plans, particularly over the summer period where LP availability often drops off. These GPs are now looking to launch their fundraising efforts in the fourth quarter of the year, when investor attention is expected to be more focused in preparation for a refresh of allocations in 2024.

The first half of 2023 has seen a mix of challenges and successes in the fundraising landscape. GPs have had to adapt to longer timelines and adjust their target fund sizes to align with LP preferences. Overall, however, our outlook into H2 2023 remains positive as we assist our own GP clients to navigate the fundraising landscape successfully, despite the market volatility. The most successful will rely on their ability to adapt to changing circumstances to meet the demands of LPs and demonstrate their market resilience, track record and expertise.