The stakes are high in the mega-fund games

As LPs flex their muscles in a rebalancing fundraising market, fund sizes stand to decrease.

Last week, we brought you news that Global Infrastructure Partners is well on its way to raising its $25 billion fifth flagship, with $22 billion in its line of sight, if you count both hard and soft commitments in the more optimistic scenario we were given.

That’s no mean feat in this tough fundraising market, even with GIP’s star power. It’s also a blast of much-needed good news after the precipitous drop in Q1 fundraising, where $3.6 billion was raised in the worst Q1 since 2009. If the stars align, it’s possible Fund V will still close this year.

If that were to happen, we could even be in for a first, with Brookfield and GIP both closing their flagship funds in the same year. With $24 billion raised, Brookfield is within an inch of hitting its $25 billion target for its fifth flagship. If both do close at target this year, they would raise $50 billion between them – not a million miles away from the $61 billion raised by the four mega-funds closed last year. The third comparable fund in market – EQT Infrastructure VI – said in late April it had raised some €6 billion against a target of €20 billion, and does not expect to close this year.

Of course, we have all been spoiled by the heady years of 2021-22, when ever-larger funds launched and closed with lightning speed, smashing their targets in the process. When we looked at the top 15 oversubscribed funds that closed between April 2021-22, we found they had amassed $33 billion more than the $77 billion they set out to raise. The largest – KKR’s fourth flagship – ended up raising $5 billion more than its original $12 billion target. That’s not something we anticipate happening with this year’s closes.

The stakes, then, are as high as they’ve ever been in the mega-fund games. Case in point: GIP, which hired Campbell Lutyens to help raise Fund V, the first time it’s enlisted a placement agent to assist with one of its flagship fundraises (someone pass the smelling salts out back).

Delays aside, we fully expect the mega-funds actively fundraising to hit their targets. Where things get more interesting is with the mega-funds that are not so far into the process or have yet to launch, a club which includes KKR and Stonepeak’s fifth vintages – each said to be targeting $20 billion – and Brookfield’s second Global Transition Fund, aiming to raise $17 billion.

“There are still a lot of LPs who don’t like mega-funds because they believe there are higher returns in the mid-market,” Kelly DePonte, managing director at placement agent Probitas Partners, told us in our latest cover story on what managers can expect from the worst fundraising environment in a decade. To which Fabian Pötter, managing partner at Munich-based placement agent 51 North Capital, added:

“We have had 12 years of GPs dictating fund sizes, timelines and terms of the fund – a lot of the LPs didn’t like it that much, but they had to swallow it. Now, the world is changing, and it starts with timelines, where the LPs say, ‘Look, if that’s your timeline, I’m not going to make it’.”

For many years, average fund size has only moved in one direction – up. These days, that’s no longer a given. In fact, you need only look sideways at private equity to find blue-chip managers openly admitting they might miss their ambitious targets amidst somewhat strained efforts to ‘contextualise’ what that means (not good, of course, but maybe not bad, also?).

We think that might prove wishful thinking in a market where LPs are able to flex their muscles for the first time in a long time. After all, as boxing legend Robert Fitzsimmons reportedly said prior to a fight circa 1900: the bigger they are, the harder they fall.