PE Fund Sizes Get Even Larger in 2015

The number of private equity funds closed in North America has decreased since 2014, but the average fund size has gotten a lot larger, according to data from Preqin.

The past year has been an interesting one in terms of private equity fundraising—data from Preqin reveals that the back half of 2015 has had a drop in the number of funds raised compared to 2014, yet the average fund size has increased substantially.

As of Dec. 15, a total of 958 funds have closed this year, compared to 1,332 in 2014. But 2015 data shows that the average fund size is $561B, whereas last year’s average size was $476B.

The decreased number of funds likely has a lot to do with low oil prices, which has made some general partners hesitant to try to raise capital in the volatile energy sector. At the same time, for those general partners who are in the market trying to raise funds, they are facing a limited partner universe that no longer feels the same sense of urgency to commit to new funds.

“Earlier this year the consensus was that this was going to be a V-shaped recovery—oil prices had bounced back somewhat. People were bullish again and they viewed the correction as a buying opportunity,” says Eaton, who is based in Houston and heads up global origination as well as real assets and energy fundraising at Eaton Partners, a global fund placement and advisory firm. “Now that we’re back down, and all the analysts are predicting low oil prices for maybe all the way through 2016, that’s definitely changed the mood and slowed down things.”

The number of private equity funds closed in North America has remained steady throughout 2015. However, the number of fund closings has dipped just slightly on a quarterly basis. According to data from Preqin, the first quarter of 2015 and 2014 had 269 and 281 funds close, respectively, but Q3 of 2015 had only 221 compared to Q3 2014’s 295.

For Q4 of 2015, there have been only 123 fund closings, as of Dec. 15. This contrasts by a significant amount with Q4 2014, which had 427 funds close. However, according to Preqin there is often a lag in the data as it depends on getting information from the limited partners invested into the funds, who in turn get their information from their GPs. By the end of Q1 2016, it’s expected that the funds closed will become much larger, in line with the rest of 2015.

Preqin’s data also shows that the aggregate capital raised has been mixed when comparing 2015 with 2014. For example, Q1 has increased from $114.9B to $126.5B from 2014 to 2015, but Q2 went from $162.3B down to $133.3B. The fourth quarter of 2014 had the largest amount of capital raised out of the past two years, $165.9B—a stark contrast to this year’s Q4, which shows a mere $77.4B as of Dec. 15— although this amount of capital raised would also rise as more fund data is reported to Preqin.

The Preqin data includes all the closed-ended funds—private equity, venture capital, real estate, debt, infrastructure, etc., and all are funds whose managers have headquartered offices located in North America—but not necessarily investing into North America. The numbers show the total aggregate size of the fund that has had a close in the given quarter.

The decrease in the number of funds and capital raised in the back half of 2015 could also be because of the continued low oil prices. Eaton says that a lot of the fundraising numbers are misleading.

“If you were to look at the numbers for 2015 as a whole, it’s going to look like we’ve had a pretty good year,” he says. “I would argue—in fact, the numbers would back this up—that a lot of that money was raised in the first quarter or first half of the year. And if you were to look at it on a trend-wise basis, the third and fourth quarters are probably going to be pretty low compared to last year’s fundraising. And that has to do with oil prices.”

Despite the drop in fund sizes and amount of capital raised, the average fund size has gotten a lot larger over the past year, especially in the last two quarters. The average fund size almost doubled from Q3 of 2014 compared to the same quarter of 2015, jumping from $416M to $737M. The final quarter of this year already shows an average fund size of $691M as of Dec. 15—compared to last year’s $473M for Q4.

“Oil prices are cyclical, and there will be a recovery,” says Eaton. “There’s a lot of interest in getting in at these lower [oil] prices. The question is, what should they do?” Firms are questioning whether they should buy public equities rather than locking their capital up for 10 years, or look at credit or distressed-oriented plays, he says. “So there is still interest,” Eaton adds. “People are just trying to spend more time figuring it out.”