Smaller funds are facing increased competition for investor capital with the majority of US funds targeting less than $500 million, according to a report by advisory firm Cebile Capital released last Monday.
Secondaries-focused funds are no exception. There were 26 dedicated secondaries funds targeting $500 million or less as of the third quarter of this year, compared with 22 at the same point last year, according to PEI’s Research and Analytics division. Those funds were chasing roughly the same amounts, with a total $5.6 billion targeted this year compared with $5.5 billion last year.
“Competition for dollars raised from investors has never been higher,” Cebile noted in its report, Fund Raising Lessons Learned for Smaller GPs.
Secondaries funds seeking $500 million or less as a percentage of the total funds in market dropped marginally to 57 percent rather than 58 percent. T
Funds of $500 million or less in size face numerous challenges raising capital.
“Size alone precludes many potential limited partners from being able to invest in smaller funds due to concentration limits, reducing the number of eligible investors,” the report noted. “Smaller funds have fewer resources at their disposal to commit to marketing activities, meaning they take longer to raise, on average, than larger ones.”
The report outlined 18 strategies that primary and secondaries lower mid-market funds can use to enhance fundraising, including using staple deals, restructurings or late primaries/early secondaries to attract LPs, targeting investors outside North America and Europe and holding a first close of at least one-third of target size as quickly as possible.
Number of funds in market
Total targeted capital