If private equity firms with an eye on distressed companies can stay competitive amongst their peers, they’ll be on track for a solid year.
New data from Preqin, which analyzes private equity, real estate and hedge funds, looked at data from this year, up to August, and found that the private equity market is expected to lean more heavily on distressed securities – much of that in response to investor hunger for opportunities in pressurized areas like Europe.
While annual distressed private equity fundraising has been strong over the past couple of years, 2012 is showing signs of even further improvement. As of August, capital commitments to these funds hit $27-billion, matching 2011’s total and near to the post-crisis annual peak of $30-billion in 2010.
The big concern now is that more managers are looking to fundraise, creating stiff competition for dollars. In the ﬁrst quarter of 2009, Preqin found that 48 distressed private equity funds vied for capital commitments, today 62 funds are looking for capital.
But at least limited partners haven’t soured on these investments despite uneasy financial markets. It’s actually quite the opposite, with 37 per cent demonstrating a more positive attitude towards distressed opportunities since the crisis. Another 57 per cent said their opinion on distressed assets hadn’t changed. But the twist is that these investors are only willing to commit capital to veteran managers. Almost all the money invested in distressed funds this year has been committed to experienced players.
Most of the interest for these funds comes from North America, but increasingly from Europe. Euro-focused distressed private equity funds have closed with an average size of more than $1-billion this year, which is 30 per cent more than 2011, and more than double the $409-million average we saw in 2009.