Capital Markets

Report: Private Equity Slammed by Crisis

Just $82.3 billion was raised by 117 funds in the third quarter, the lowest amount raised since the first quarter of 2005, when 159 funds scooped u...
Stephen TaubOctober 6, 2008

The global credit crisis and market meltdown appear to be taking a heavy toll on the world’s private-equity markets.

Indeed, a mere $82.3 billion was raised by 117 funds in the third quarter according to research by Preqin, an alternative-asset information provider. That was the lowest amount raised since the first quarter of 2005, when 159 funds scooped up just $64.8 billion.

So far this year, a little over $400 billion has been raised by PE funds, according to the Preqin report, which defines private equity as any alternative investment class, including buyouts, venture-capital and real estate, but not hedge funds. Last year, PE funds raised more than $628 billion, up about 15 percent from 2006.

Preqin points out that, based on a 12-month rolling period, the peak of the market can be traced back to the first quarter of 2008. “Private equity fundraising is set to enter its most challenging era of all time,” Tim Friedman, a company spokesman, said in a press release. “The very biggest firms may be able to gather commitments from previous investors, but many of the less experienced mid-sized and smaller funds that constitute a higher risk in the eyes of investors will find conditions to be extremely tough.”

In the third quarter, funds focusing on the United States raised the most amount of capital, with 61 vehicles gathering $57.9 billion in total commitments. Another 31 funds focused on Europe raised $11.9 billion, while 25 funds focusing on Asia and the rest of the world picked up $12.5 billion. “This represents an especially inactive quarter for European fundraising, with funds focusing on Asia and the rest of world exceeding the total capital raised for Europe for the first time in the history of the industry,” according to the report.

Among the different types of PE, buyout funds were most popular, with 35 funds raising $43.2 billion. Although buyout funds remain the most popular fund type, the total levels of capital raised represented a significant drop from previous quarters, according to the report.

A total of 23 real estate-focused funds raised $23.7 billion, with much of that capital being raised by funds focusing on providing debt and those considered “opportunistic in nature,” Preqin found.

A total of $9.3 billion was raised by 38 venture-capital funds achieving a final close in 2008. That was down about 25 percent from the second quarter and significantly off from the $21 billion raised by the sector in the third quarter in 2007.