Is It Harder Than Ever for Pension Funds to Invest With Top Private Equity Funds?

Many more private equity funds reached or surpassed their hard caps in 2014 than in 2013, and the funds are also raising capital at a faster pace.

As a result, many pension funds are finding it difficult to put their money in the most sought-after private equity funds.

From the Wall Street Journal:

Heated competition to get into top private-equity funds is leaving some investors out in the cold.

Pension funds, endowments and wealthy individuals that invest with private equity are finding it increasingly hard to get into the most sought-after funds, according to data and industry participants.

Private-equity firms, which raise money from such investors and then put it to work in various investment strategies, are generally filling their coffers faster this year from clients. The proportion of private-equity funds that reached or exceeded the maximum amount the firms set out to raise this year is at its highest level since at least 2009, according to a snapshot of funds for which private-equity tracker Preqin has data. Typically, firms put a limit on the size of the fund they are raising, known as a hard cap, at the beginning of the fundraising process. That hard cap generally can’t be exceeded without approval from fund investors.

As of Nov. 13, 55% of roughly 280 funds for which Preqin had hard-cap data reached or surpassed that maximum size. Last year, 43% of funds hit or exceeded those limits.

Also, private-equity firms have taken an average of 16.4 months to raise capital for funds that have closed this year, Preqin data show. That’s two months shorter than the average time it took to raise funds that closed in 2013.

“The number of quick fund closings has been especially pronounced this year,” said Cathy Konicki, a partner at investment-consulting firm NEPC LLC.

Read the entire Wall Street Journal report here.

Photo by  Matthias Ripp via Flickr CC License