Top heavy

The 2017 PEI 300 saw more capital raised by the industry’s biggest firms than ever in its history as market conditions drive investors toward brand names.

A lot has happened since we last published the PEI 300, our definitive guide to the industry’s top fundraisers. Britain has voted to leave the EU. Real estate mogul and reality television star Donald Trump has become the 45th president of the United States. And private equity has had yet another stellar fundraising year.

Our May issue – published this week – includes a preview of the PEI Q1 Fundraising Report 2017, which reveals that 163 funds held a final close in the first quarter of this year amassing $124 billion between them, an increase of more than 20 percent on the $102 billion raised in the same period last year.

Across the PEI 300 the five-year fundraising total now stands at $1,352 billion – the highest since we started this ranking in 2009. Private equity has been an overwhelmingly popular choice for investors since 2012. (This year’s ranking takes into account capital raised between 1 January 2012 and 1 April 2017.)

Capital is concentrating in the hands of the mega-managers. The five-year fundraising total for the top 10 firms this year, at $320 billion, accounts for 24 percent of the total capital raised. This is an increase from 23 percent last year, and 21 percent in 2015. This can be seen as a symptom of LPs’ desire to benefit from scale, entrusting larger quantities of capital to a smaller number of managers.

It can also be seen as a flight to quality – or at least to the familiar – in the face of macroeconomic uncertainty. Chris Davison, partner and head of investor relations at Permira – number 20 in the 300 – told PEI recently that during his firm’s recent €7.5 billion fundraise “there was absolutely a lot of focus on how we performed during the last financial crisis”. A low loss ratio on its crisis-era fund stood the firm in good stead this time around: investors are looking for franchises that will not lose their capital in the event of a market correction.

The PEI 300 top 10 is once again dominated by North American firms, while in Europe, huge fundraises from the likes of Apax Partners, Cinven and Permira have propelled them up the rankings.

Blackstone swept to the top of the list in 2016 from fourth place with a five-year fundraising total of close to $60 billion. It’s no surprise, then, that it remains at the top.

However, the gap between the firm and its peers is narrowing. Second place KKR is hot on its heels, closing the gap on its rival by $8 billion to $16.7 billion this year.

The Carlyle Group – which surrendered the crown to Blackstone so spectacularly last year – is also back with a bang, with a five-year fundraising total $10 billion higher than when it was in the top spot in 2015. And the firm has big plans on the fundraising front, eyeing $100 billion in the next few years. On the firm’s first-quarter earnings call this week, co-chief executive David Rubenstein said he expects all the firm’s private equity funds coming into market to hit their hard-caps.

The top four of this year’s PEI 300 – Blackstone, KKR, The Carlyle Group and TPG – is a familiar crop. Indeed it is the same four that populated the top of the list in 2014, albeit in a different order. With these firms having so well-established their brands, diversified their fund offerings even within the private equity asset class, and being entrusted with an increasing proportion of institutional investors’ money, is anything likely to change the world order?

Well yes: Japanese technology giant SoftBank is in advanced stages of raising a $100 billion technology-focused fund from, it appears, a relatively small number of limited partners. Assuming it fulfils the necessary criteria for inclusion in the ranking, it will top next year's list by a margin of tens of billions.

Our top heavy ranking is likely to become even more so.

The PEI 300, the only apples-to-apples ranking of the largest managers of private equity capital, is available here