Q&A: Fundraising Review/Preview

How complicated was fundraising in 2009?
Fundraising in the first half of 2009 was an extremely difficult task as most LPs were not open to any investments, but in the second half of the year investors were far more open with allocations and some were made towards the end of the year. 2009 also saw a number LPs choosing to commit to secondary and specialised funds to the point where there was a large capital overhang.

 
Have LPs been satisfied with French GPs during the downturn?
LPs have generally been happy with the way GPs handled their portfolios during the downturn. French GPs have used a hands-on approach to their portfolios during the difficult period, with deal-doing coming a clear second in terms of priorities. LPs don’t mind GPs not making new investments for a year or so providing they properly manage their portfolio and make sure that they continue to generate solid proprietary deal-flow. The most attractive GP for an limited partner is one who can balance the portfolio in light of the downturn, while managing to get the occasional deal or exit away.

 
Have GPs coped with the downturn?
The majority of GPs in France have managed the downturn well, though some funds will inevitably fade away. Some funds will be unable to fundraise due to due to a number of factors such as the poor performance of their portfolio, in-fighting between senior partners, a lack of intellectual and financial stimulus for mid-level management teams. Another real problem in the current environment is that up-and-coming talent within GPs will lose out on the incentive of future carry and may be tempted to seek greener pastures elsewhere, triggering succession issues for certain GPs.

 
How is fundraising in 2010 looking from the LP perspective?
2010 can’t be any worse than 2009: LPs will be back in the market in a more intelligent and systematic way, valuing quality over quantity. While French Banks were historically the main provider to the private equity market, they are more likely to concentrate on the debt aspect in 2010 and in some cases spin off their investment arms.

Meanwhile, French Insurance companies have been the most forthcoming with regards to making commitments in European funds in 2010 and are likely to play a key role in fundraising this year. We have also been seeing interest from foreign sources. U.S LPs, wanting diversity from dollar investments, have been keeping an eye on European funds, and in some cases will commit for the first time.

The next couple of years are going to give us some of the finest vintages Private Equity has ever seen.

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