Marc Biamonte and Debra Lussier Comment on Middle Market Fundraising in Mergers & Acquisitions

In Mergers & Acquisitions, asset management partners Marc Biamonte and Debra Lussier discussed the current state of private equity fundraising in the middle market, where smaller firms face an increasingly difficult landscape shaped by liquidity constraints, longer fundraising cycles, and a flight to quality among LPs.

Marc noted that both sides of the GP-LP relationship are navigating new pressures. "GPs are dealing with a lack of exits, and LPs are dealing with liquidity constraints, both from a lack of exits in their current funds, and as a result of other economic and political headwinds," he said. He observed that GPs are tempering their approach accordingly. "GPs are not moving as aggressively on (fund) terms as they have in prior cycles where they were coming off of more successes, and where LP demand was higher," he said.

Debra noted that despite these headwinds, the highest-demand funds – particularly those with smaller target sizes – are still seeing quick closes. "This is an example of another basic dynamic in the current environment: a 'flight to quality' as the biggest fundraising successes have been concentrated at the top of the market," she said. Debra added that GPs finding fundraising success are often focused on the hottest sectors, like digital infrastructure or private credit, and are getting more creative in incentivizing LPs to commit early or at size by offering discounts, carry-free co-investment opportunities, and commingled overage funds with lower fees. Looking ahead, she identified three trends to watch: more new and complex fund structures targeting the retail investor market, LPs getting more cautious and vocal about deal flow, and potential fallout from frothiness in the private credit market, especially if massive AI and data center lending doesn't pay off.