The rising tide is good news for buyout and VC fund managers

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Things are looking great for private equity fundraising. Firms are now amassing more capital than prior to the pandemic. All told, $188bn was raised across 452 funds in Q1, surpassing the $163bn collected by 431 funds in the same quarter of 2020, Preqin data show. A soaring stock market has undeniably been welcome for the industry. As per the denominator effect, when public equities rise LPs typically up their PE exposure to balance their asset allocation targets. And that appears to be exactly what is happening. So far this year the S&P 500 has gained more than 12%, after marching upwards in 2020 following the pandemic-induced shock in the first quarter of 2020.
Some findings from a recent LP survey by Eaton Partners suggest that GPs should expect to see more good fundraising news, provided no major upsets in the stock market that is… 

  • More than half (52%) of LPs say that soaring public market valuations make private market investments look more attractive. In a rising tide, investors are confident that funds can acquire companies to sell for a profit at a later date.
  •  On the impact of remote working to investor/fund manager relations, 63% of LPs say there has been minimal disruption, not just to existing relationships but to prospective relationships too. As we have seen over the past year, technology has been the great enabler that has kept business activity flowing. 
  •  58% of LPs say they have already identified re-up fund managers but still have enough budget for new ideas. This suggests that there is more to go around and potentially for managers that LPs have not invested with before.

This all points to a bumper year for PE fundraising. Easy monetary policy continues to stoke higher-risk assets and interest rates are expected to remain at near-zero through 2023. LPs are not only investing their capital, they are anticipating yet more allocations. What’s more, they are comfortable forging new relationships in a remote context and are open to committing to managers they have not previously invested with.

As for where this capital is likely to flow, Preqin has recorded a 114% surge in aggregate venture capital deal value in Q1 2021 versus the same period last year, to $126bn. Investment is piling into digital startups that are positioned for success in a post-COVID world—or a world in which we manage to live with COVID.

Relatedly, 61% of LPs expect to increase their allocations to VC as well as safer buyout strategies, according to Eaton Partners, with growth equity not far behind with 54% anticipating allocation increases. It is a good time to be a VC or buyout manager then. Of course, if last year taught us anything it’s that everything can turn on a penny. Markets may have priced in a faster recovery than is delivered if vaccine rollouts don’t gain adequate traction.

As things stand, though, LPs are back to committing to PE as they hope GPs will invest through the economic recovery. Until further notice, that recovery is in full swing. This month the International Monetary Fund upgraded its global growth forecast to 6%, the second upward revision in three months. As a proxy for the economy, this indicates that stock markets will close higher this year than where they started.

This rising tide is lifting private equity’s boat too.

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About Palico

Palico is the leading digital marketplace for private equity primaries and secondaries specifically designed for fund managers and institutional investors.

Primary Platform: Palico’s primary platform is a comprehensive fundraising solution. GPs have access to a full array of digital tools to communicate and nurture prospective investors, including: Virtual Data Room, Messaging Module, Stats for fundraising performance, and Newsroom. Those tools are complemented with a matchmaking algorithm that alerts a vast LP member base (over 2,800 LP members and counting) of new fund investment opportunities and a notification system that notifies the LP network when the Newsroom is updated with major milestones and events.

Secondary Platform: Palico’s secondary marketplace, designed by PE industry experts, standardizes the process of selling and buying PE fund interests — especially for smaller transaction sizes (~$2 – $20M). The marketplace features nearly all traditional major secondary funds in addition to hundreds of non-traditional/opportunistic buyers. From single family offices to large pension funds, LPs are now a few clicks away from participating in and enjoying the versatility that secondaries provide to their PE portfolios.