Fundraising Lags
Despite the buyout industry’s benchmark-beating returns, fundraising has lagged in recent years. Private-equity funds in the first quarter had taken an average of 18 months to close, the most in three years, according to Preqin. First-time funds secured just $4 billion globally in the quarter compared with $32 billion in the second quarter of 2008.
Private equity’s solution to the funding problem is to aim lower.
Blackstone, KKR and Carlyle Group LP, the Washington-based buyout firm that manages $176 billion in assets, usually open their doors only to clients willing to commit at least $5 million. In the past year, all three have introduced offerings such as mutual funds and exchange-traded funds to cater directly to individuals.
Chasing 401(k)s
One goal is to penetrate corporate retirement funds, which will hold $5 trillion by 2016, according to Boston-based research firm Cerulli Associates.
“We definitely would like to be part of 401(k) platforms,” says Mike Gaviser, a KKR managing director.
In January, Carlyle started a fund with New York-based investment firm Central Park Group LLC that will accept as little as $50,000 from individual investors. It’s called the CPG Carlyle Private Equity Fund. CPG will allocate money from the pool to Carlyle-managed buyout funds.
“These things are selling like hot cakes right now,” Tangent Capital’s Rice says. “This is the next wave of alternative offerings.”
That’s cause for concern to David John, deputy director of the Retirement Security Project at the Brookings Institution in Washington.