In its annual outlook, PitchBook Data Inc. predicts U.S. private equity megafunds — funds that amassed at least $5 billion in capital — will raise a total of $250 billion in 2022. If the company's prediction comes to fruition, capital raised by U.S. megafunds would surpass the combined $144.5 billion raised in 2019, the current 10-year high point. In 2021, 12 U.S. private equity megafunds raised $138.4 billion as of Nov. 30.
For example KKR & Co. Inc. raised a total of $102 billion in the first nine months of 2021, more than double the $44 billion in capital raised in all of 2020, "and that's with an active pipeline of fundraising initiatives as we look forward," said Craig Larson, a New York-based partner and head of KKR investor relations during the $459 billion alternative investment firm's Nov. 2 earnings call.
Also, the period between managers' raising their next funds is getting shorter and shorter, due to investor interest and ease of fundraising — from four to five years on average to about two and three years on average, Mr. Bragar said. For technology funds, the waiting period is only 12 to 18 months, he said.
The implication for investors is that fundraising is outpacing distributions, which will create liquidity pressure for the investor, he said.
"At some point, likely to be in 2022, there's going to be some ramifications in the market," Mr. Bragar said. "Either LPs will start cutting back commitment sizes, or committing less to fewer managers or committing less overall."
Private equity managers are aware that the contribution-distribution imbalance could break up their fundraising party. They also note that they only start raising new funds when their predecessor has spent a majority of its capital.
During Blackstone Inc.'s third quarter earnings call on Oct. 21, Jonathan Gray, president and chief operating officer of the $731 billion alternative investment manager, said that a number of its flagship funds had invested more than 50% of their capital. But, he said, in most cases, Blackstone executives wait until a fund has invested more than 70% of its capital before raising the next fund.
And Blackstone is raising funds more often, said Stephen A. Schwarzman, Blackstone chairman, CEO and co-founder, on the same call."Our active pace of deployment is leading to an acceleration of the fundraising cycle for some of our largest flagship funds," Mr. Schwarzman said. "The overall outlook for fundraising is incredibly strong."
Mr. Gray noted that Blackstone's growth as a firm has opened up new areas of investment in which the firm "didn't have pools of capital previously."
Blackstone invested $37 billion in the third quarter and had an additional $30 billion committed to pending deals, its busiest quarter ever, Mr. Gray said. The largest investments were in rental housing, transportation infrastructure, logistics and sustainability-linked businesses. Even so, Mr. Gray acknowledged investors' constraints. Blackstone had total net inflows of $47 billion in the third quarter.
"One headwind on fundraising that exists out there is that private equity has been such a strong sector that investors are in some cases overallocated," Mr. Gray said.
Blackstone had $232 billion in private equity assets under management as of Sept. 30.
Across the private equity industry, while the number of exits was in line with most prior years, the size of exits ballooned in the first three quarters of 2021, PitchBook data shows. As of Sept. 30, private equity firms exited 1,129 U.S. companies worth a combined $638.3 billion, a substantial increase from the 994 exits with a total value of $366.1 billion in all of 2020. However, the number of exits was similar to the 1,120 exits worth $323.2 billion in 2019.