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Megafunds make up greater share of private market fundraising in 2017 – report

Alternative investment managers raised a record $750 billion worldwide in 2017, according to a private markets report released Wednesday by McKinsey & Co.

This tidal wave of capital "extends the cycle that began eight years ago," the report noted. Continuing a trend, total capital raised by megafunds — those with $5 billion or more of total capital — was up dramatically. Buyout megafunds were up about 93% to $173.7 billion in the 12 months ended Dec. 31. By comparison, middle-market buyout funds — with $500 million to $1 billion in assets — grew by 7% to $31.8 billion. Funds raising less than $500 million were up 3.5% to $29.1 billion.

U.S. megafund buyouts accounted for a record 15% of total worldwide private markets fundraising in 2017, up from 7% in 2016.

Private credit funds raised about $100 billion in 2017, up 10% from the year before. Most of the growth was in European private credit funds, which were up 26%, and Asian private credit funds, which were up 200% but off of a low base.

The flow of real estate capital flows are shifting to lower-risk strategies. Forty-three percent of the $3.1 trillion in real estate assets under management as of Dec. 31, 2016, was in core, up from 38% as of Dec. 31, 2012. What's more, capital invested in core real estate closed-end funds is decreasing, accounting for 11% of the assets under management in 2016, down from 15% in 2012. By comparison, 63% is in separately managed accounts as of Dec. 31, 2016, up from 59% as of Dec. 31, 2012. About 26% of the AUM is in open-end accounts, flat with 2012, the report noted.