What will be the long-term impact on changes to the ways funds are raised? To better understand the fundraising environment in the industry, we had a short talk with Cameron Nicol, Marketing Director for Nasdaq Private Fund Solutions and here are some insights Cameron shared with us.
What types of funds are LPs currently looking at? Any change in their strategies?
LPs continue to prioritize private equity and venture capital.
There was increased activity in private credit funds in the wake of COVID-19 pandemic, but as global economies recovered and market dislocations dissipated, activity returned to pre-pandemic levels.
One area we’re seeing greater activity is digital infrastructure, so everything from fiber optics and 5G to data centers and cell towers. LPs are seeing these as the best funds to get superior returns out of their real assets portfolios, so we’re seeing them turn away from energy and into these types of funds. That said sustainable or renewable energy has also seen strong demand
Will the trend of raising megafunds continue?
Large fund managers will continue to raise massive funds because of the consistent revenue it brings in via the fixed management fees.
Large LPs will continue to invest in them because the returns are consistent, and these large GPs are the only ones capable of taking such massive check sizes. Smaller funds might deliver higher returns but at much smaller check sizes, and it doesn’t move the needle for massive LPs.
How has the PE fundraising environment been affected by the pandemic? Pros and cons of virtual fundraising in 2020?
It was challenging for anyone trying to raise a new fund or from new investors. LPs for the most part did not enter into new relationship virtually. They tended to re-up with managers they had existing relationships with.
Managers who did well were those who were able to quickly raise and launch opportunistic and market dislocation funds, generally these were the bigger names with more internal resources at their disposal to make manoeuvres like this.
Now hybrid or virtual fundraising is widely accepted however and many LPs are moving to a model where they are comfortable making commitments without in-person meetings, or reducing the number of in-person touch points required before committing.
Have you seen more GPs adopt new technology in order to meet their fundraising targets?
I think as we’ve seen the move to virtual fundraising and work from home, there has also been a broader shift towards, and focus on technology. GPs are reexamining their existing processes and trying to understand how they can be improved of completely redesigned for the better with technology.
Fundraising is definitely one of those processes – we’ve certainly seen an uptick in interest in our technology offerings that assist in the fundraising process, and I’m sure other providers would say the same.
This increased interest and adoption of technology is also driven by competition. GPs are looking for an edge against their competitors when it comes to fundraising from the same LPs so many of them are turning to technology to give them an advantage.
Are we bound to see more 20 bn funds in upcoming years by the major PE houses? Is there a ceiling for the size of flagship PE funds?
I think 100% yes we will see a few more of those from the big players in the market. Already you have Carlyle Partners VIII and Thoma Bravo XV in the market fundraising at $22bn each. We’re projecting fundraises from Advent, Blackstone, and EQT that will each come to about $20 billion as well.
There likely is a ceiling simply because there are only so many deals these massive funds can chase and GPs will start to see diminishing returns. I’m sure we’ll see a $30 billion fund in the next few years.
Is it more appealing for LPs to invest into the mega funds than diversifying across multiple fund managers?
Again, I think the mega funds appeal more to the LPs with large amounts of capital that they need to put to work. It’s unwieldy for them to make hundreds of smaller commitments in many managers to commit all that capital. Additionally, many don’t have the resources to perform all that due diligence plus monitoring.
That said I think if a few of these mega funds deliver sub-par returns we’ll see a more balanced approach from LPs and perhaps even a pull back on fund sizes targeted by GPs.
Interested to get more insights on that topic? Then come and join us on the 3rd of November 2021 at 12 pm CET at the panel discussion "Future of Fundraising: Raising Megafunds - Is there something that will change the trend?" at our online PE and VC conference 0100 Virtual Europe. Cameron together with the speakers from Pantheon, StepStone Group, SwanCap Partners and PFR Ventures will cover all the current trends and challenges regarding fundraising.
To be able to attend this event you need to register on the Hopin platform.
