European fund closes slump by 42% amid lockdown

The first quarter of 2020 saw a decent level of fundraising activity, with 73 funds reaching either a first or final close over the first three months of the year, comparing favourably with quarterly figures seen since the beginning of 2019. While this could suggest that the onset of lockdowns across the world in March had a limited impact on fundraising, looking at the three-month period between March and May tells a different story.

Overall, 44 funds held a first or final close between the start of lockdown and the end of May, for aggregate commitments of €23bn, according to Unquote Data. With the average quarterly figure between Q1 2019 and Q1 this year standing at 77 closing events, the Covid-19 outbreak certainly seems to have put a damper on funds crossing the finish line.

With just a few days remaining in Q2, preliminary figures indicate that this quarter will likely have the fewest fund close announcements for some time. Interestingly though, the number of first closes looks set to exceed the number of final closes, a rare occurrence suggesting that proceeding through early fundraising stages is still possible in lockdown, and that some GPs may have heeded advice to lock in commitments as early as they can (even if not on an optimal figure) given the ongoing uncertainty.

One bright note is that the quarterly value drop is not expected to be significant, owing to a handful of large closes that are likely to significantly boost H1 commitment totals – and perhaps disguise the true extent of the slowdown in fundraising across the market. Earlier this month, France-based Ardian closed its ASF VIII fund, the world's largest vehicle dedicated to the secondaries market to date, on $19bn. One month prior, IK Investment Partners closed its IK IX mid-cap investment vehicle on its target of €2.85bn. That same month, Deutsche Beteiligungs AG (DBAG) held a final close for DBAG Fund VIII on €1.109bn, slightly above target, following a first close in December 2019 on €1bn.

European PE fund closes, March to May 2020

source: Unquote Data

Meanwhile, a number of investors continue inching towards their targets. Around 194 European funds that have been launched since the beginning of 2018 but are yet to hold a final close are seeking to raise a total of €125bn, to which can be added 91 registered funds in pre-marketing, targeting a total of €25bn. While the overall tally may include structures that failed to reach their original stated targets and therefore quietly closed to new commitments, it is a sign that there will be a high number of GPs still on the (largely virtual) fundraising trail in 2020. Among the high-profile GPs expected to target fund closes in the short term are CVC Capital Partners, EQT, BC Partners, Montagu, Bridgepoint and Eurazeo.

Those on the road in the middle of an unprecedented health and economic crisis will find solace in the fact that such situations can present opportunities for PE players, and by extension their LPs. Historically, the best vintages for small-cap and mid-market funds over the last 15 years were 2008 and 2009, according to Hervé Gevers, senior vice-president at Unigestion. This strong performance was driven by a number of reasons, he says. Firstly, private equity investors were able to benefit from lower entry valuations in the years immediately following the global financial crisis (GFC). Secondly, the small-cap and mid-market companies in which private equity firms invested were those that had already survived the GFC, clearly demonstrating the resilience of their business models. Finally, the eventual economic recovery from 2009 onwards provided a useful tailwind to all companies. With certain important caveats, the next one to two years may provide similar conditions for investors, particularly in the small- and mid-cap segments.

But GPs currently raising will still face stiff competition for whatever opportunities arise in the post-Covid-19 landscape, given the rude health of the fundraising market in recent years: Unquote has recorded 495 buyout and venture funds holding final closes between 2017 and 2019 alone, for aggregate commitments of €254bn.

Large European funds currently on the road

Source: Unquote Data

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