A growing group of private equity firms are priming lukewarm investors to expect requests for new funds later this year, having run out of money -- and time -- to invest in new deals.
Some are reaching the end of their fund's five-year investment period and need more time to spend remaining capital, before braving investors whose pockets have been emptied by two years of weak portfolio performance.
Others are running out of cash, but equally need to show they have invested wisely and deserve another shot.
"The main reason a lot of them are coming back now is that they have been waiting a long time," says Antoine Drean, chairman of Triago, a company that helps private equity firms raise capital.
He believes fundraising is easier than in 2009 but no easier than at the start of the year, as many firms had hoped.
BC Partners, which last raised capital in 2005, is warming up investors ahead of an expected fundraising in the autumn.
The firm recently extended the investment period of its eighth buyout fund for another year, to allow it to invest remaining capital.
Montagu Private Equity is also set to come back for more money later this year, having last raised in 2005. At the beginning of the year it extended the investment period of its current fund by one year to July 2011, a source familiar with the situation said. Montagu declined to comment.
Others mulling fresh fundraisings in the second half include Barclays Private Equity, Scandinavian buyout house EQT, mid-market buyout firm Palamon and French-focused house Astorg, people familiar with the situation say.
The private equity firms either declined to comment or were unavailable for comment.
LOWER FEES
Investors themselves face tough choices over who to back, and whether or not to allow firms to extend their funds. They are doing more detailed diligence on firms and investments, and even the performance of individual partners.
BC's draft fundraising document is about four times the size of the 2005 volume, said a source familiar with the matter, as investors demand details on deals going back 10, and in some cases 20, years and more on investment plans.
"Everything is much more granular," the source said.
BC and Montagu are among the first to ask for more time to invest existing funds and met little resistance from investors, two sources familiar with the situation said.
But investors expect more firms to extend, particularly those whose investment period ends in 2011 -- their ranks include 3i Group.
In general, investors are willing to extend but expect to renegotiate management fees, said Kathleen Bacon, managing director at fund of funds HarbourVest. Paying fees only on invested capital, as opposed to drawn or all committed capital would be a significant saving for investors.
Investors are also on the look out for firms that hoovered up companies from rivals to avoid extending funds.
"There's some healthy investor scepticism that those firms who are deploying capital quickly and especially into secondary buyouts are doing so in order to avoid the issue and to get out ahead of the huge wave of private equity firms coming to market in the next 12 to 18 months," said Bacon.
Investors say it is clear to them which firms have been disciplined and which have not. Those that bought a number of companies at high prices with low projected returns are likely to fall out of favour.
"If you are an active investor today, you have so much choice among the top groups, there is really no reason to go for the average quality, let alone the very poor ones," says Triago's Drean.