Private-equity funds are in a mad dash for cash. Across the country, nearly 2,000 private-equity firms are making pitches to state retirement systems, corporate pension funds and wealthy investors in the hope of raising nearly three-quarters of a trillion dollars for their next, new funds — more than what was raised over the last two years combined.
The push is part of the life cycle of the private-equity industry, which raises investment pools from large institutions and others that typically last about 10 years. Buyout firms combine the money with borrowed cash to acquire companies over the first five or six years and then sell those companies or take them public — at a profit, if all works out — before the 10 years are over.
Buyout firms that last raised money during the boom era from 2006 to 2008 need to raise their next funds to maintain certain fees. Funds charge an annual management fee of 1.5% to 2% of money raised and take 20% of profits from their investments.
Pension systems across the country are now wading through the deluge of funds seeking fresh cash. Just last year, officials at the Massachusetts Pension Reserves Investment Management Board, which oversees $53.9 billion in assets, reviewed 179 offering memorandums, met with 85 potential new fund managers and attended 48 annual fund meetings.
Nearly all of the titans have joined in the derby for dollars, including Apollo Global Management, the Carlyle Group and Bain Capital.
For some, raising new, even bigger funds will prove extremely easy. Others, however, will walk away empty-handed or with a much smaller amount than they wanted.
“The consistent top-quartile guys, especially those who also did well in the recession, they’ll raise their money in nine months to a year,” said Lawrence Schloss, a longtime private-equity investor who oversees $145 billion in pension investments for New York City’s teachers, police, firefighters and transit workers. “Others just won’t be able to do that. If they have a plus-or-minus zero rate of return over the last seven years, well, that’s kind of a stinky fund.”
For many private-equity firms, the success of their fund-raising season