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Private equity sees deepening bifurcation of the fundraising market

Alternative assets performed well compared to other asset classes during the first half of 2021 with fundraising increasing by around 50% compared to the same period in 2020. However, these figures conceal a deepening bifurcation of the market exacerbated by the pandemic over the last 18 months, according to Sarah Clarke, Founder and Director of Foundation Fundraising Services. During the pandemic, most due diligence moved online, and LPs had to adjust to not being able to meet fund managers face-to-face. These factors led to many LPs focusing their attention on established relationships with well-known funds. Typically, LPs relied on recognizable brand names and re-ups. The uneasiness LPs felt allocating to new and ‘riskier’ groups during the pandemic also led to an under allocation in 2020, resulting in a backlog today.

Established funds

 Recognized funds saw steady fundraising commitments from their network of LPs during the pandemic. LPs have come under pressure to make commitments as the lockdown period lasted longer than expected; consequently LPs often played it safe by directing money towards existing relationships and reups.

LPs have reported that they are finding it far more difficult to select funds given the time required to digest reams of information and to extract the facts required to make their investment recommendations. “There is undoubtedly a backlog of fund launches following the exceptional circumstances of the pandemic, which has resulted in an overwhelming amount of information for LPs to review”, noted Simon Thornton, Founder and CEO of PEARonline.

New Managers

In contrast, new funds witnessed a difficult 18 months. First-time and less-established managers struggled to develop relationships with LPs in order to garner commitments. This has been exacerbated by the more onerous due diligence requirements and the infrastructure required to keep up with larger and more complex paper trails, which has put smaller funds under further strain.

Cost efficiencies will undoubtedly be a consideration for all firms, but no doubt more pronounced for first-time and smaller funds. However, investing in sophisticated fundraising communications will help to demonstrate the commitment of GPs to their LPs, noted Sarah Clarke. She added that the proliferation of technology is an exciting trend that will allow smaller funds to speed up processes and enable the assembly, dissemination and analysis on a scale that fund managers previously couldn’t manage. “Communicating all of our information to the outside world in one easily accessible place has made life a lot easier,” commented Managing Director of BluePeak, Adam Hadidi.

Understand LPs’ requirements

Understanding LPs’ needs and requirements is essential in fundraising communications and shows a willingness to engage in their due diligence processes, particularly in the case of ESG and D&I strategies. A detailed, rigorous, and well-thought-through fundraising data room can help support the investment case and showcase your fund’s key values in an easily digestible way.

PEARonline partners with established and first-time funds to enable straightforward and simple communications that fit your LPs’ requirements. The PEARonline team have hands-on experience of working in investor relations and are here to support you. Download our fundraising checklist to get started.

First-time funds can also benefit from PEARonline’s first-time fund program which gives new GPs access to PEARonline’s fundraising data rooms at a lower introductory cost. Please contact for further details.

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