Why hard caps are a key focus in private equity funds

2017 saw a record low of funds missing their targets

Why hard caps are a key focus in private equity funds
Steve Randall
Private equity fund managers were hitting or exceeding their maximum fund sizes (hard caps) in record numbers during 2017.

New data from Preqin shows that just 20% of funds failed to reach their stated hard cap targets last year, a record low. Over the 2015-2017 period 56% of funds met or exceeded targets.

“The private equity industry saw a banner year in 2017, as both dry powder and fundraising records were broken,” commented Christopher Elvin, Preqin’s Head of Private Equity Products. “As private equity funds are achieving greater fundraising success, fund managers are surpassing their fund targets more and more often, increasingly raising capital up to or past their hard cap levels.”

The trend of fund managers raising to their hard cap is most evident with the largest funds of half a billion dollars or more, and seems to be focused on the most established North America-focused vehicles and buyout funds.
One in five North America-focused funds closed since 2007 raised more than their hard cap, while 14% of Europe-focused funds did the same. Proportions in Asia and Rest of World were significantly lower.

Given that the current environment sees most successor vehicles target significantly more capital than their predecessors secured, that they still breach their limits is a marker of how much capital is flowing into the industry,” added Elvin. “Investors may have concerns on this front, though, over the rate of deployment of capital, as well as concerns over the fund drifting away from its original strategy.”