First-Time Fund Launches

By target fund size in $m

Then again, maybe it doesn’t hurt that much. The number of new managers exceeds what we saw in 2021, a peak year for fundraising. Existing managers are pretty bullish about launching new products also. But note the difference in scale, because this is important.

Consider the size of the funds being raised in each category and then think back to the prior chart. New managers are raising the majority of funds at the very smallest end. That’s the part of the market that is shrinking on a relative basis. Sure, many of these funds are focused on niche strategies, but what are the chances of success here? What are the chances that these funds will be funded and, once raised, do well? (Yes, we know in Lake Private Equity Woebegone, all small funds have 100% IRRs. In our database of actual results, however, they do not). Notice the difference in size goals for the existing managers’ new funds. Much larger. In addition, those new funds have an existing infrastructure to support a smaller size. Again, we see the larger industry players getting bigger, particularly through the growth of new product lines.

Let’s return to the depressing (if you are a general partner) side of the business today. We know that the target size for funds is a combination of dreams, marketing and luck, but, in the aggregate, it gives you a good feel of what’s happening out there when you see how funds are doing against their targets.

Buyout Fund Size as Percent of Target Fund Size

Ruh-roh, general partners, not so good. The trend over the last three years is down, and 2022 marked the first time in 10 years that target sizes were not exceeded. In fact, 2022 fundraising was the lowest percentage miss in 20 years. That is a hard statistic to ignore, even if you are a congenitally optimistic general partner.

Average Fundraising Length of Top 30 Buyout GPs

IN YEARS

Even the biggest and baddest of the lot are finding it more difficult to raise capital. Fundraising cycles are lengthening. Get used to it.

Well, geez, that paints a bleak picture, doesn’t it? We need help dammit! We were born and bred to raise and spend! Where is our fundraising Batman to help us through these dark times?

If you listen to some, our Batman resides, not in Gotham City, but in the Kingdom of Private Wealth.

Take a gander at some of these numbers. They’re simply staggering.

• The private wealth management market in the U.S. is projected to wrap up 2023 at $58 trillion in AUM, up from $51 trillion in 2022. That is just under 50% of global private wealth management AUM, which is estimated to be $122 trillion dollars by the end of 2023. (Source: Statista)

• The private wealth channel is extremely underpenetrated when it comes to alternatives exposure. Estimates by McKinsey put current allocations to alternatives at just 2% on average.

• If we just look at the average U.S. private wealth investor allocation, and it increased from 2% to 3%, that would add $580 billion to the AUM of the private markets. That’s an increase in private market AUM of more than 5%. 

Interested? Are you not entertained at least?

We surveyed a global set of private wealth managers and asked them how much they planned to allocate to private markets in 2024 and whether this was a change from the prior year.

In all fairness and transparency, this group represents many of our existing clients and partners, meaning there’s a selection bias, because they are already interested and allocating to private markets. Still, when almost 75% of respondents are increasing their allocation from the prior year, in a time when the institutional fundraising market is weak, you can understand why there is so much interest in reaching the private wealth channel.