Fundraising shows signs of life – but not as we know it?

The fundraising leg of the private equity tripod, long seen as the one most paralyzed by the downturn, now seems to be twitching. Teacher Retirement System of Texas, an impeccably blue-blooded US pension fund investor, has just revealed a $200 million commitment to Asia Pacific private equity, via Morgan Creek and Hong Kong’s Squadron Capital. At a very different end of the spectrum, Spring Capital formalized its support from Hong Kong HNWs by announcing a $150 million first close. MENA buyout group Abraaj Capital tapped its existing investor base to raise $375 million through a rights issue.

Back in the USA, the VC sector, also widely thought to be suffering patchy fundraising, contraction and consolidation, and even challenges to its very existence, saw some major closes. Promod Haque’s Norwest Venture Partners announced a $1.2 billion close on its Norwest Venture Partners XI fund – almost double the size of its last vehicle, which closed in 2006. This followed on Greylock Partners’ announcement of a $575 million close on its Greylock XIII fund. And in the post-closing coverage, Haque cited China and India as important angles to its winning fundraising story.

LPs, it seems, have untangled their purse strings and are back in the market for serious commitments to funds – a development that can only give comfort to an industry that was waiting for the shoe on the fundraising leg to drop, after the investment leg kicked off with Oriental Brewery in Asia, and IMS Health Inc. and TASC in the US, and exits followed with Myer in Australia and Shenzhen Development Bank in China. But this may not be the fundraising market we’re used to from previous cycles, and GPs and LPs hoping for a return to the good old days – and arguably, some of the bad old practices – may be in for a surprise.

For one thing, the continuing test of strength between LPs and GPs seems unlikely to subside any time soon. The Institutional Limited Partners Association’s Private Equity Principles was a concerted effort by 60 major institutions, it bears repeating – from a global and sectoral cross-section of the entire LP community, let alone bell-wethers like CalPERS and GIC. Their 74 recommendations provide any LP with a serious institutional reference point to negotiate terms and conditions with any GP. And at the recent AVCJ Private Equity & Venture Forum in Hong Kong, “alignment” was practically the mantra of the entire conference. Timothy Recker, MD for Private Equity at the University of California Regents, asserted: “Alignment of interest: that’s the Number One risk across the entire industry, more than anything.”

Sentiments like that are not likely to go away soon. But the LPs also may find some pushback against their new empowerment – potentially from some surprising directions. For one thing, many conversations around alignment at the November Forum turned on the RMB fund issue, and global LPs’ concerns that GPs would neglect their interests in the rush to launch new RMB platforms to tap domestic PRC private equity money. But some LPs’ insistence that they would not invest, on principle, with any GP who has an RMB fund platform does not seem to be deterring the GPs at all.

Also, Abraaj’s new fundraising seems to have reaped rewards for a very unconventional tactic. Rights issues have worked very nicely this year for Australian and Indian companies, for instance, and if other firms can take the same route to tap capital sources, there may be less need to take the traditional fundraising trail, or to fall into line with the ILPA’s guidelines. Sheikh Abdulrahman al Turki, Abraaj Capital’s chairman, was publicly very pleased with how “the success of the rights issue, with its focus on raising strategic capital, stands in contrast to the current global fundraising environment.”

So, as the private equity industry in Asia and worldwide takes comfort from the resurgence in fund commitments, it might do well not to get too comfortable yet. This may not be the old fundraising life cycle as we know it. Institutional and other changes may be in the offing that could force fundraisers to be just as nimble, and smart, as they have had to be during the dark days of 2008-09. LPs, likewise, might have to temper their new-found confidence with caution.

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• Topics
• Fundraising
• TPG Capital
• Promod Haque
• Norwest Venture Partners
• Spring Capital Asia
• Squadron Capital Advisors