According to the Financial Times, investors now really want their money back.
Private equity firms are struggling to raise money, despite offering all kinds of perks to investors. In the twelve months leading up to June, they raised 592 billion dollars – the lowest amount in seven years, according to data from research firm Preqin. The Financial Times reported on this.
Fundraising in the sector has shrunk by almost a third compared to the record levels of 2021, the British business newspaper noted. As a result of higher interest rates and a slowdown in dealmaking, aging investments piled up at private equity firms. The PE firms are said to be sitting on trillions worth of unsold companies that should have been offloaded long ago.
Last year, PE firms returned only 11 percent of the industry’s assets to investors – the lowest figure since 2009, according to the FT. This has frustrated investors, who are now less willing to finance new funds.
The Financial Times also attributes the crisis to the large number of new entrants into the private equity sector after the 2008 financial crisis. The paper describes the PE market as oversaturated.
According to the Financial Times, PE firms are trying to entice investors with discounts on management fees, early-bird discounts for those who commit quickly to new funds, volume-based discounts, and new terms such as caps on certain legal and travel expenses. Such incentives have reduced net management fees paid since the global financial crisis by about half.
Earlier this year, PE firms had hoped for a rebound in deal activity, partly due to Donald Trump’s election as U.S. president. But that expectation has not yet been fulfilled. According to the FT, investors now really want their money back.
The sale of companies by private equity groups slowed even further as a result of the trade tariffs imposed by the U.S. A survey by British financial advisory firm Campbell Lutyens showed that a third of limited partners wanted to scale back their private market investments after Trump’s tariffs, while 8 percent opted for a complete pause.
