Private Equity Funds Face Fundraising Headwinds

Preqin’s data reveals evidence of a supply/demand imbalance in the unlisted sector.

Record levels of dry powder and an all-time high number of funds seeking capital will pose serious headwinds for private equity fund raising in 2015, according to Preqin.

The data firm reported that 2,252 private equity funds around the world were seeking an aggregate $800 billion from investors at the end of 2014. Funds that have raised capital are holding a collective $1.2 trillion of cash to be deployed.

In addition, the number of private equity funds that closed in 2014 having raised sufficient investment capital fell to 977, the lowest figure since 2009.

Preqin’s report said it was “likely that managers may continue to struggle to hold a final close in the coming year” given these challenges.

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Christopher Elvin, head of private equity products at Preqin, said the low number of closures had been a “stumbling block” for the growth of the asset class.

“It is evident that the private equity fundraising market is still in a state of bifurcation,” Elvin said. “The largest, brand-name managers are receiving the majority of investor commitments, with smaller managers—particularly first-time funds—finding it difficult to raise capital.”

Funds from managers new to the private equity sector accounted for 7% of the $486 billion raised in 2014, the same proportion as in 2013.

In contrast, established names dominated the list of the biggest funds closed last year. The largest single fund was Hellman & Friedman VIII, a buyout fund run the eponymously-named San Francisco, California-based firm. Blackstone, Bain Capital, and Permira all closed funds with more than $5 billion of investment capital raised.

Despite the headwinds facing the private equity sector, Elvin said managers were spending less time on the road raising capital: Funds closed in 2014 on average took 16 months to hit their fundraising targets, compared with more than 18 months for funds closed in 2013.

Elvin also highlighted positive investor sentiment towards private equity. Preqin’s survey of institutional investors found that more than half were planning to make their next investment in the sector in the first half of 2015.

Private equity investor sentiment

Home > News > Asset Allocation > Corporate DB Plan Funding Levels Suffer in 2014

Asset Allocation January 5, 2015

Corporate DB Plan Funding Levels Suffer in 2014

The aggregate funding levels fell to just 80% at the end of last year, nine percentage points behind 2013’s peak.

Funded status for US corporate defined benefit (DB) plans in 2014 retreated to post-financial crisis levels, according to Towers Watson.

The consulting group found that aggregate pension plan funding levels for 411 Fortune 1000 companies fell to 80% at the end of last year, nine percentage points behind 2013 figures.

Pension deficits likewise increased to $343 billion at the end of 2014, Towers Watson said, accounting for more than twice the deficit at the end of 2013.

“Despite a rising stock market in 2014, funding levels for employer-sponsored pension plans dropped back to what we experienced just after the financial crisis,” Alan Glickstein, the firm’s senior retirement consultant, said.

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Revisions in mortality tables and falling interest rates contributed to an overall decline in funding levels by offsetting strong returns, the analysis concluded, with conditions expected to continue into 2015.

“This year will most likely bring higher expense charges and unless there is an uptick in interest rates or equity market performance, eventually additional contribution requirements,” said Dave Suchsland, Towers Watson’s senior retirement consultant.

In a separate report on 2014 funding levels, Legal & General Investment Management America said there could be an increase in the use of derivative strategies “to increase exposure to return-seeking assets without reallocating out of their fixed income hedge portfolios.”

According Towers Watson’s analysis, pension plan assets saw a bump of about 3% in 2014—to $1.4 trillion from $1.36 trillion at the end of 2013—reflecting an investment return of nearly 9%.

Company contributions continued to decline last year reaching their lowest level since 2008, with just $30 billion flowing into pension plans. This was 29% less than contributions in 2013, the report said.

Plan sponsors using liability-driven investing strategies were better off in 2014 than those with traditional 60/40 portfolios, according to Towers Watson, largely due to declining discount rates matching strong returns for long-duration corporate and treasury bonds.

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