Private equity fundraising appears set to take a big step back in 2023, with both investor commitments and the number of funds in market pacing for full-year totals not seen since the middle of the last decade.

Globally, private equity funds raised $444.65 billion in the first half, down 20.5% year over year from $559.02 billion in the first half of 2022, according to S&P Global Market Intelligence and Preqin data.

More recent data shows this year's global fundraising total nudged up to $450.56 billion as of July 13, putting the asset class on track for a projected annual total that would be private equity's weakest fundraising performance since 2015.

Even brand-name funds are falling short of expectations in what Blackstone Inc. President Jonathan Gray described as a “very challenging fundraising environment” on his firm’s second-quarter earnings call.

A year ago, in the second quarter of 2022, Gray said the in-market vintage of its flagship corporate private equity fund, Blackstone Capital Partners IX, would be “at least as large” as its $26.2 billion predecessor, and it was widely expected to target $30 billion. Twelve months later, he acknowledged it was likely to close “in the low-$20s billion range.”

Funds in market dwindle

The 489 private equity funds actively raising investor capital in the first quarter fell to just 456 funds in market as of the second quarter, the lowest quarterly total since September 2014, according to S&P Global Market Intelligence and Preqin data. The first half was also marked by a steep year-over-year decline in new fund launches.

That the number of funds in market is down even more dramatically than overall private equity fundraising may be the sign of a flight-to-quality phenomenon among LPs, suggested Bart Molloy, a partner at placement agent Monument Group.

“I think there is some skew toward the larger funds that have shown they are a safe pair of hands,” Molloy said.

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That doesn’t mean there aren’t opportunities for emerging managers, he added. In a less-crowded fundraising marketplace, investment committees have more room in their schedules to hear pitches from new fund managers.

“When [LPs] do see something they like, they're able to dedicate heavy resources and get it done,” he added.

‘Liquidity crunch’

Bain & Co. in its midyear private equity report linked tepid fundraising to a “liquidity crunch for limited partners.” A prolonged exit slump has slowed the flow of distributions to private equity investors, leaving them with less cash on hand to reinvest in new funds.

Gray, in his comments on Blackstone’s second-quarter earnings call, said growing confidence in the path of inflation and interest rates was a positive signal to markets, adding that more deal activity and exits would eventually relieve some of the constraints on private equity investors.

“A sustained good period for markets is very helpful for our ability to raise capital, particularly from institutional investors,” Gray said.