Chart of the Week (Apr. 15) - GP Consolidation

For this week’s Arctos Insights chart of the week, we highlight recent fundraising trends from our recently published Q1 2024 Keystone Market Update.

Consistent with prior fundraising “recessions,” the number of funds closed has dropped nearly 50% since the beginning of the 2022 downturn. However, unlike prior recessions, average fund sizes only decreased moderately, and we are already seeing averages rebound to near-2021 peak levels less than two years after the start of the downturn. In contrast, it took over a decade for average fund sizes to eclipse pre-GFC highs.

?This illustrates the “flight to quality” and “capital concentration” themes that are well covered in the industry. There are several consequences of the accelerating concentration in private markets, including the meaningful impact on small-cap and emerging GPs. Per McKinsey, the number of funds that raised <$1.0B fell by ~50% in 2023 vs. 2022, and new manager formation fell to the lowest level in over a decade.

?While some believe the accelerating concentration in private equity will abate when the fundraising market rebounds, we believe there are structural dynamics (access to permanent capital, retail distribution and product capabilities, etc.) that will cause these trends to persist over the coming decade.

Source: Preqin, Robert Shiller, S&P, Burgiss, Arctos Analysis. Includes North America and Western Europe buyout, expansion capital, and venture capital. Assumes current Burgiss database captures 35% of total fund closings. Uses inflation-adjusted (real) 60/40 portfolio monthly returns. As of February 2024.