Fundraising is still down but preparing a fightback

There are no signs yet of investors putting caution to one side, but a change in sentiment may not be far off.

It’s been a tough year and a half for those firms attempting to raise capital for private debt strategies, but there may be light at the end of the tunnel.

Our latest data lays bare the difficulties fundraisers have faced. With the first wave of the pandemic battering many leading economies in the early months of last year, limited partners went into defensive mode – putting some allocations on hold, while committing cautiously to managers they were familiar with. The result was a subdued year for capital raising in 2020, down to $174 billion from $212 billion in 2019. It didn’t help, as we point out in our fundraising summary, that LPs and GPs have found it so difficult to meet face to face.

Any hopes that a swift fundraising recovery would follow in 2021 appear to have been banished by our latest figures. With covid infections proving persistent and variants of the illness causing fresh difficulties, it’s clear this will be a long haul rather than a swift turnaround. In the first half of the year, $88.5 billion was raised – a lower amount even than the $93.2 billion raised amid the strife of H1 2020. By way of context, the peak fundraising year of 2017 saw nearly $280 billion gathered.

The continuing caution of investors is reflected not just in lower amounts of capital committed to funds, but also in their choices of strategy. In the first six months of this year, almost half (48 percent) of the capital was invested in senior debt strategies as LPs gravitated to the safest part of the capital structure. This is a substantially larger portion than the average 30 percent allocated to senior debt between 2016 and 2020.

This is, of course, a retrospective look at the market. In our recent conversations with market sources, we have been struck by the bullish mood surrounding fundraising prospects. Having performed well up to the pandemic amid a benign economic backdrop, investors have been impressed by the continuing strong performance and resilience over the last 18 months. With coffers having been replenished by a favourable investing environment, don’t be surprised to see the fundraising taps turned on again as we head through the second half of the year.

Write to the author at andy.t@peimedia.com