Between 2010 and 2013 – a period of time in which annual private debt fundraising approximately tripled from $43 billion to $128 billion – there appeared to be a direct correlation between volume raised and length of time in the market.
As funds became more attractive to limited partners, so time to final close came down from an average time of 17 months in 2010 to just 12 months in 2013, according to PDI data.
Since then, annual fundraising totals have stayed healthy. While the $128 billion collected in 2013 turned out to be the market peak, totals since then have not been far behind – ranging from a low of $115 billion in 2014 to a high of $122 billion in 2015. The first-half 2017 figure of $62 billion puts this year on course to be somewhere near the record.
But while fundraising is proving fruitful, it appears that it is also an increasingly long haul. Since the 12-month average period to final close in 2013, time in market has increased steadily since then – and, in the first half of this year, went back up to the average of 17 months last seen in 2010.
“For me it sounds counter-intuitive,” says Boerge Grauel, a partner at Munich-headquartered funds of funds manager Golding Capital Partners. “I would expect to see it shortening as it’s a very benign fundraising environment. The pendulum has swung to GPs on such things as leverage, access to due diligence, GP-friendly LPAs etc.”
However, despite the tailwinds boosting GPs, there are at least a couple of possible explanations for the growing fundraising timeframes. Grauel suggests one: “Given the benign environment, a lot of new managers are starting their businesses and it takes longer for them to get anchor investors, obtain momentum, make investments and begin to provide proof of concept.”
A second possible reason lies in successful managers increasing their target amounts and, perhaps at the same time, seeking to diversify their investor bases – for example by type of investor or by geographic location.
Both of these could be reasons why, hand in hand with fundraising success, private debt fund managers are taking longer to bolster their coffers. It may sound counter-intuitive, as Grauel suggests, but could also be seen as a natural indicator of the asset class’s increasing maturity as it grows and diversifies.