Private equity fundraising takes a hit

Date: Thursday, April 2, 2009

Private equity fundraising in the first three months of 2009 dropped to its lowest level in more than five years - news that will be a surprise to few - while the number of buyout firms scrapping plans to raise fresh capital is increasing.

A total of USD45.9bn was raised for the final closes of 71 private equity funds in the first quarter of the year, indicating that investors are probably having their own liquidity problems.

According to Private Equity Intelligence, this total represents a fall of 71.5 per cent from the USD161bn raised during the first quarter of 2008, and of 63.3 per cent from the fourth quarter of last year, when USD125bn was raised.

The number of abandoned fundraising campaigns is small but rising. During the first quarter, nine fundraisings were withdrawn, compared with 30 for the whole of last year and 14 in 2007.

The research notes that many private equity firms plan to postpone the final closing of their current vehicles as a result of falling investor appetite. Instead they are holding more interim closes for their funds, allowing managers to start investing while continuing to raise money.

However, this could also be an indication that the pressure on managers to start spending the considerable quantities of investor money they are already sitting on is easing. With less new money coming in, firms may have more freedom to wait for the right moment to invest.