Best of LinkedIn: Private Equity: Fundraising CW 31/ 32

00:00:00: provided by Thomas Allgaier and Frennus, based on the most relevant LinkedIn posts about private equity.

00:00:05: Fundraising insights in calendar weeks thirty-one and thirty two.

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00:00:16: you can find more info in description.

00:00:18: so um set at this stage.

00:00:20: here today we are doing deep dive into top private equity fundraising trends that just buzzing all over linkedin right now.

00:00:27: We've clustered all this intel into three main themes for you.

00:00:30: Yeah, Three themes just to help everybody cut through the noise really because it's a lot of noise out there For strategy and investment professionals.

00:00:37: There is so much noise And You know To understand The landscape right now I think we have Look at the macro capital flow first Because they get This two point one trillion dollars in dry powder Just sitting there

00:00:49: Right which sounds amazing Like A total gold rush

00:00:52: Exactly!

00:00:54: anyone with a half decent pitch deck could just walk out and raise the fund right now.

00:00:58: But they can't, that's the crazy part!

00:00:59: The money hasn't disappeared obviously but its destination has shifted so radically.

00:01:04: it's setting up this brutal sorting mechanism between the haves...and the have-nots.

00:01:09: Yeah huge divide.

00:01:11: Let us look at first theme here This whole flight to quality in a contracting market.

00:01:15: Overall fundraising volume is shrinking Like, Charlotte Hogg shared some numbers recently that USPE fundraising was actually down nineteen percent in the first half of.

00:01:43: John Stuart actually posted about this, noting how first-time fund closes have just dropped off the cliff.

00:01:47: It's

00:01:48: completely falling off?

00:01:49: Oh!

00:01:49: Completely because you know LPs are flocking to the mega cap brand names.

00:01:52: Sid Jain shared a stat that blew my mind.

00:01:55: The top ten PE buyout funds raised about one hundred and twenty nine billion dollars in each one.

00:02:00: Just ten

00:02:00: funds?!

00:02:01: That

00:02:01: is just ten.

00:02:03: And KKRs North America Fund A eleven took twenty three billion of all by itself.

00:02:09: That is insane.

00:02:10: Just soaking up all the oxygen in the room.

00:02:13: and it's not even just buyout mega funds, right?

00:02:15: Alternative assets are seeing this exact same

00:02:18: thing across the board.

00:02:19: like Marcus Eggloff highlighted that KKR closed its largest infrastructure fund at nineteen point two billion.

00:02:25: And Jimmy firstling was talking about starwood capital closing a ten point to billion dollar real estate Fund mainly targeting hospitality as a diversifier.

00:02:33: Right.

00:02:33: so it's this massive flight to proven giant managers.

00:02:37: Yeah exactly.

00:02:38: but um There are exceptions, aren't there?

00:02:41: Like it's not totally impossible for others.

00:02:43: No!

00:02:43: It's non-impossible.

00:02:44: Exceptional middle market and debut funds are still winning but they have to be absolutely stellar.

00:02:49: Elliot T. Freedman pointed out Francisco Partners closing twenty one billion across their flagship and middle market fund.

00:02:55: Okay so a huge win there

00:02:57: Huge.

00:02:58: And for debut funds.

00:02:59: if you highly differentiated edge You can still break records.

00:03:02: Liddy B. Hudson and Leonardo Rosas both talked about Citation Capital hitting a one point.

00:03:06: two billion dollar hard cap.

00:03:08: Wait

00:03:08: really?!

00:03:08: A billion plus for a debut fund.

00:03:11: Yeah, which is actually record in Texas.

00:03:14: so it happens.

00:03:14: Okay

00:03:15: I have to push back on the overarching narrative here though Because you hear all these GPs basically crying about high interest rates saying oh the macro environment right now.

00:03:25: Are they just using that as an excuse?

00:03:28: Well,

00:03:28: I mean... Because Chris Febele made this amazing point.

00:03:31: He said the industry happily spent the last four decades claiming that the upside from falling interest rates was pure skill like look how smart we are.

00:03:39: but now They blame the Fed for the downside.

00:03:42: So aren't the GPs who were outperforming today Just the ones Who actually know How to build value instead of relying on financial engineering?

00:03:49: Yeah i think Sebele's Point is totally spot-on.

00:03:52: The era Of cheap money Is over.

00:03:54: If you can't build actual operational value, You're gonna get found out real quick in this market.

00:04:00: Which brings us perfectly to our second theme honestly Do diligence?

00:04:04: LPGP trust and how AI is completely flipping the script.

00:04:08: Yeah This where it gets really wild.

00:04:11: Because of capitals concentrating into fewer hands LPs are obviously evaluating these managers a lot more closely.

00:04:17: Right The old playbook.

00:04:18: You can't just slide a glossy pitch deck across the mahogany table anymore.

00:04:22: Well, definitely not.

00:04:23: and you know The first impression isn't even human any more.

00:04:26: David Weisberg shared this research showing that ninety six percent of institutional allocators Run AI screens on a GP before they even take a meeting.

00:04:35: Ninety-six

00:04:35: percent That's almost everybody.

00:04:37: It is, everybody.

00:04:38: And the AI isn't just reading your nicely formatted deck it's that they're scraping the media building a profile.

00:04:44: They found that LPs actually rank The reputation of the CEO and the firm above the stated returns

00:04:50: Above the returns?

00:04:51: Wow So you digital footprint matters more than your IRR spreadsheet Exactly.

00:04:56: But it goes beyond Just the AI screen.

00:04:57: right because James Neal noted That GPs are literally commissioning independent fundraising.

00:05:02: due diligence on themselves.

00:05:03: now

00:05:03: Yeah...they have to

00:05:05: Like their bringing in portfolio company, CEOs board members existing LPs to basically validate their track record.

00:05:14: To new investors because all peas want to know how the sausage was made.

00:05:18: not just that it tastes good

00:05:20: right.

00:05:20: they wanna know The exact mechanics of those returns.

00:05:23: by the way quick side note if you Want to keep getting these curated insights without the fluff make sure You hit subscribe so you catch our future deep dives.

00:05:30: yes

00:05:31: Definitely hit subscribe.

00:05:32: So back to this intense diligence, the frameworks are changing too.

00:05:35: Oh completely!

00:05:36: Philip Kraft brought up this fascinating new three-step approach by Organica.

00:05:41: They actually separate a GP's pitch into three distinct buckets for The Investment Committee.

00:05:46: Okay what of the bucket?

00:05:47: so first you have the audited financials just raw historical truth.

00:05:52: Second, you have management's base case.

00:05:54: Like the GP's optimistic view of future.

00:05:57: and then third they layer on an entirely independent view.

00:06:00: Ah!

00:06:01: So that committee can actually see where the GPs narrative diverges from reality?

00:06:05: Exactly it shows them exactly why their numbers should or shouldn't be trusted.

00:06:09: That is brilliant.

00:06:10: but you know GPs aren't just taking this AI revolution lying down.

00:06:14: They are using it themselves.

00:06:16: Oh yeah its arms race.

00:06:17: Like going back to L.E.T Friedman's post about Francisco Partners, they went from marketing to a first close on that twenty one billion dollar raise in about three months

00:06:26: which is insanely fast for this market.

00:06:28: unheard of.

00:06:30: and how did the do it?

00:06:31: AI operating capabilities used if you're LP targeting And they automated their due diligence questionnaires The DDQs.

00:06:38: DDQ takes months manually

00:06:41: Right!

00:06:42: They use AI to track record analysis instantly.

00:06:45: It basically requirement now.

00:06:47: So my question to you is, Is the modern fundraising environment just algorithmic dating for institutional capital at this point?

00:06:54: Huh.

00:06:54: Algorithmic Dating

00:06:55: Seriously like your digital reputation score gets you past The AI screen.

00:06:59: That's a swipe right.

00:07:00: but actually get married and Get the commitment.

00:07:03: You need character references And This airtight operational prenup.

00:07:06: Like are we seeing the death of relationship based Fundraising?

00:07:10: I wouldn't say that Death Of It.

00:07:12: But the Relationship has To Be backed by Verifiable data now.

00:07:16: You can't just be a good guy to golf with, the algorithm has to like you first and then independent auditors have.

00:07:44: LPs need cash back.

00:07:45: They are desperate for cash, and Lee McCabe pointed out why it hurts so much.

00:07:50: There's this ticking fee clock on uninvested capital an unsolved assets right

00:07:54: holding three point seven trillion in dry powder.

00:07:56: sound safe But

00:07:57: but it quietly erodes your net returns because of the ongoing management fees.

00:08:02: if The exits are stalled LP still pay fees.

00:08:05: So they're turning to the secondaries market as a release valve

00:08:08: And that market is just exploding to meet the demand.

00:08:11: Maxine Kharmoniak highlighted that ClipWay just closed its debut secondary fund at a record six point four billion dollars.

00:08:19: A debut fund, it's six-point-four billion!

00:08:21: Let that sink in...

00:08:23: It's staggering and Tom Callahan mentioned NPM is actually acquiring NASDAQ funds secondaries business.

00:08:29: they want to combine direct share and multi asset fund stake trading on one single platform Just to enhance liquidity access for everybody which

00:08:39: is sorely needed.

00:08:40: But there is a really fascinating bottleneck here that Mustafa Siddiqui pointed out.

00:08:45: Oh,

00:08:45: but the supply and demand impalance?

00:08:46: Yeah!

00:08:47: So despite record high deal volumes in secondaries The actual dry powder raised for secondarys falling.

00:08:54: Wait how does it work if market is booming?

00:08:56: Because the bulk of buying capacity sits with just a few mega buyers at the very top.

00:09:01: It leaves the entire middle market vastly undercapitalized, there is not enough secondary capital to buy out all the middle-market LPs who want liquidity.

00:09:17: buying the age of a bottle that someone else already stored and de-risked for you.

00:09:30: It's a perfect analogy.

00:09:31: But if secondaries are the aged wine, what about all these structured capital solutions?

00:09:35: Like our GP is just creating these to avoid selling assets at a discount.

00:09:40: Oh absolutely They don't want to sell a good company in a bad market so they are looking for alternative liquidity.

00:09:46: Matt Kerfoot noted that Proskauer advised on four billion dollars of preferred equity fund financings In just six months.

00:09:54: So they're taking unstructured debt at the fund level to pay out LPs.

00:09:58: Exactly, and Michael Hacker discussed AlpInvest closing its Adam II Fund which is a single asset continuation vehicle.

00:10:06: Right The CVs Move the best asset into a new fund, let old LPs cash out or roll over.

00:10:12: Yeah it buys the GP more time to grow the assets without holding original LP's hostage.

00:10:17: Furthermore we are seeing this surge in GP states.

00:10:20: have you seen numbers on that?

00:10:21: It is wild turned into one hundred billion dollar asset class.

00:10:25: Exactly!

00:10:26: Muir Irfan Ali and Philip DeVuser both talked about blue owl capital really leading here

00:10:32: Right, where they literally just buy a minority stake in the private equity firm itself.

00:10:37: They just by piece of the GP to give the founders liquidity.

00:10:41: Yeah

00:10:41: it's structural evolution.

00:10:42: The market is inventing new plumbing To get liquidity moving again.

00:10:46: It really yes.

00:10:47: Okay.

00:10:47: so that actually brings me to final sort of provocative thought for you to chew on before we wrap up here.

00:10:52: Let us hear it.

00:10:54: So if traditional committed buyout funds are struggling with alignment Their fighting over valuations and they've got this ticking fee clock eroding returns.

00:11:05: Look at the rise of The Independent Sponsor.

00:11:07: Oh,

00:11:07: this is a really interesting shift

00:11:09: right?

00:11:09: John Kapl and Peter Martinson shared some data on This?

00:11:12: The independent sponsor model where you actually find the deal first And then you raise the capital second Is generating a median twenty three point eight percent IRR

00:11:21: which is huge.

00:11:22: That's

00:11:22: five point three percentage points above comparable buyout funds.

00:11:25: Wow

00:11:26: because there is no ticking fee clock

00:11:28: exactly driven by proprietary deal flow and the alignment is intense.

00:11:33: LPs only fund the exact deal they want.

00:11:36: It really begs the question, is the traditional committed fun model starting to look a little outdated?

00:11:50: Something to think about for sure.

00:11:51: Definitely!

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