September 21, 2015

Palico’s PE Fund Marketplace
Over the Last 3 Months, Smaller Funds have Generated Lots of Interest

Most Viewed Fundraisings Focus Target
Warburg Pincus PE XII Global BO, Growth & VC $12BN
Shamrock Capital Growth Fund IV U.S. Growth & BO $600MN
EQT VC Fund Europe VC €500MN
Bertram Growth Capital III U.S. LMM Growth & BO $750MN
Pomona Capital IX Global Secondaries $1.8BN
OCM Avalon Co-Investment Global Distressed Debt & Equity >$200MN
Accel-KKR Capital Partners V U.S. LMM Tech BO $1.2BN
Lion Capital Fund IV North America & Europe Retail BO $2.5BN
Gryphon Partners IV U.S. LMM BO $600MN
EQT Mid-Market Credit Fund Europe Mid-Market Lending €500MN
Riverside Strategic Capital Fund Global Growth LMM – Minorities $350MN
Actis Africa Real Estate III Sub-Saharan Africa RE $400MN
CVC Credit Partners Direct Lending Europe Mid-Market Lending €400MN
BOLDstart Fund III U.S. VC Seed $30MN
TEEC Angel Fund III U.S. & China VC Seed $25MN

Source: Palico

With over 2,600 PE Vehicles Vying for Capital, Only One Mega-Fund Makes the List

Perusing the 15 most-viewed fundraisings on Palico over the three months through September 15, the relative absence of the largest private equity capital raisings is striking. There are currently over 2,600 private equity vehicles raising capital for classic funds, co-investments and deal-by-deal structures, according to Palico data. But out of the 57 high-profile vehicles that are each seeking more than $2.5 billion from investors, only one makes the 15 most-viewed list. Warburg Pincus Private Equity Fund XII, the second biggest vehicle in fundraising mode today, with a target of $12 billion, takes the top spot. The largest ongoing fundraising, Blackstone Capital Partners VII – expected to imminently close on its hard cap of $17.5 billion – is absent. One factor drawing investor attention to Warburg Pincus is the mega-fund’s relatively unique mandate to invest across buyout, growth and venture capital strategies throughout the world. Most other mega-funds, though they tend to have global strategies, focus on PE’s core buyouts market. With buyout prices at historic highs, Warburg Pincus’ flexibility is viewed favorably by investors.

Funds Focusing on the Relatively Inefficient Lower Mid-Market Are Popular

The corollary of the relative absence of mega-funds from the most-viewed list is the large number of funds with strategies focused on investing in lower middle market companies – generally defined as companies with annual revenues of $5 million to $50 million. Over a fifth of the funds on the list are explicitly dedicated to lower mid-market investments: 4th-placed Bertram Growth Capital III, 7th-placed Accel-KKR Partners, 9th-placed Gryphon Partners IV and 11th-placed Riverside Strategic Capital Fund. The lower mid-market is populated with companies that are off many investor radars and is seen as a promising hunting ground for reasonably priced acquisitions.

Many Funds Have a Growth Theme

In a high-priced acquisition environment, it’s hardly surprising that investors are looking at funds investing in companies with high growth potential. In addition to the Warburg Pincus, Bertram and Riverside vehicles, the other fund on the list with a mandate to invest in growth strategies is Shamrock Capital Growth Fund IV, ranked 2nd. Among funds with a growth mandate, Riverside’s fund exhibits an extra wrinkle designed to help it achieve below-average purchase price multiples – it invests only in minority stakes. Though minority positions can complicate efforts to influence corporate strategy, seller motivation is usually based on more than just price, which means the acquisition price can be low.

Smaller VC Funds with a Noticeably Non-Silicon Valley Slant Get Attention

The smallest funds on the most-viewed list are focused on seed-round venture capital investing, which has seen more modest increases in average deal value over the past year than late-stage VC investment rounds. This is another indication that investors are focusing their attention on funds that they believe can avoid high acquisition prices. BOLDstart Fund III and TEEC Angel Fund III, in 14th and 15th place respectively, offer further twist on the typical Silicon Valley-focused VC fund. BOLDstart is based in the fast-growing New York City VC ecosystem, while TEEC’s speciality is helping Chinese VC firms make connections with Silicon Valley and vica-versa. Investors are clearly intrigued by the idea that these particularities will give these funds access to investment opportunities that would not be available to the typical Silicon Valley-focused fund. The other venture capital fund on the list, taking third place, is EQT VC Fund. It plans to make investments in European start-ups, where there has been less funding-round inflation than in either North America or Asia.

Evidence of Strategy Diversification

With a secondary fund, Pomona Capital IX, two lending vehicles, EQT Mid-Market Credit and CVC Credit Partners Direct Lending, and a Sub-Saharan Africa fund, Actis Africa Real Estate III, respectively holding down the 5th, 11th, 13th and 12th positions on the most-viewed list, it’s evident that private equity has expanded well beyond traditional leveraged buyout strategies and is crossing into new investment frontiers, driven by the search for value in today’s high-priced acquisition environment. Whether it’s via desktop, smartphone or tablet, Palico’s marketplace helps both limited partners and general partners find each other in the increasingly diverse world of private equity opportunity.