European private equity fundraising is on track for a record year after firms hauled in close to €60bn of capital in the first half of the year, new data from PitchBook shows.
Buyout houses closed 64 funds in H1 worth €59.6bn, which will lead to an annual peak in capital raised almost 20% higher than even the heady heights reached in 2019.
PitchBook’s Q2 2021 European PE Breakdown report said strong secular fundraising trends including the zero-rate environment, public market volatility and correlation, and the potential for significantly higher risk-adjusted returns from the alternatives space had continued to fuel LP confidence, boost PE allocations and propel fundraising totals.
It added that those capital raised numbers are also likely understated, as they do not account for the “lofty” coinvestment capital that is waiting on the sidelines to be deployed.
PitchBook said, “Another factor contributing to the record fundraising pace is the remarkable recovery in the public markets, which meant the denominator effect was shortlived, consequently increasing LPs’ risk appetite and encouraging allocators to continue with PE commitment-pacing schedules.
“This dynamic inspired GPs to come to market with larger PE fund sizes, which has seen the median and average PE fund size move towards new highs in H1 2021 when compared to prior year’s annual figures.
“In addition, bulgebracket shops such as BlackRock and JPMorgan Chase, which traditionally play in the public equity and debt spaces, are pivoting aggressively towards alternatives.
“They recognise that surplus capital is sloshing around, trying to find outsized yield, and PE provides a solution.
Conjointly, the gradual return of travel within the continent and the accelerating inoculation rates in the EU and the UK have encouraged more in-person due diligence meetings with LPs, which has augmented capital raised totals.”
Fund counts, however, are dipping towards a nine-year low, signalling the challenging
fundraising environment for less-established managers.
First-time fund counts are pacing towards a decade low, through a combination of pandemic-induced dislocation and LPs’ sustained flight to quality and safety in doubling down on established managers and prior relationships.
PitchBook added, “With that said, we expect the fundraising environment for first-time and less-established managers to improve substantially throughout the rest of 2021 and into 2022 as travel opens up and LPs search for specialist emerging managers with niche strategies positioned to benefit from the pandemic-induced volatility.”
Of the two PE mega-funds of €5bn-plus closed in Q2, EQT IX was the largest at €15.6bn.
PitchBook said it expects the fundraising environment to remain strong in the short to medium term, but added that rising inflation and a potential interest rate hike could slim PE commitments as fixed-income products’ risk-return profiles become more attractive.
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