Tentative Recovery Seen for Private Equity Funds

(July 11, 2011) – In a positive sign for an otherwise gloomy economic outlook, U.S. and European private equity, venture capital, and buyout funds all enjoyed healthy fund-raising levels in the first half of 2011, says Dow Jones LP Source.

The private equity industry’s strong fund-raising puts it on pace to eclipse last year’s levels, with U.S. and European funds respectively collecting 35% and 48% more in capital committed over what was raised in the first half of 2010.

“After three consecutive years of declining fund-raising, the industry has finally begun to dig its way out of the crater created by the U.S. financial crisis in late 2008,” said Laura Kreutzer, managing editor of Dow Jones Private Equity Analyst, in a release. “There’s an abundance of fund managers with strong track records that are back in marketing mode and investors appear to have regained some level of confidence in the asset class.”

U.S. private equity funds raised $64.7 billion for 201 funds in the first half of 2011, compared with the $47.8 billion raised by 225 funds during the first half of 2010. European funds collected $24 billion for 62 funds during the period, well over the $16.2 billion raised for 76 funds a year earlier. Although the fund-raising remains below that seen before the 2008 market collapse, the first half of 2011 marked the strongest period of fund-raising since the downturn.

Buyout funds prospered remarkably in the first half of 2011, showing fund-raising levels almost double that of the previous half-year’s. The capital influx was due in part to a greater number of firms looking to raise funds of more than $1 billion. Blackstone Group provided a prominent example of this trend recently when it announced that its buyout fund BCP V had exceeded expectations by raising as much as $1.5 billion over its predicted size of $15 billion.

“In 2009 and 2010, the multi-billion fund was like the California Condor in the 1980s,” said Kreutzer. “You knew it once existed, but who ever really saw one? This year, while they aren’t exactly plentiful, the multi-billion funds have finally come off of the endangered species list.”

Venture capital fund-raising was healthy in the U.S. but floundered in Europe. American venture funds rose 19% over the first half of 2010, hitting $8.1 billion, although the number of funds that held closings dropped 38% to 50 funds. The impressive figure was driven by a few prominent firms, seven of whom alone raised $6.3 billion. European venture funds had the worst first half of fund-raising since 2004. They raised $1.1 billion for 16 funds, a decline of 45% from the first half of 2010.

U.S. and European funds focused on mezzanine and secondary strategies showed flagging levels of fund-raising, a sign indicating the bullishness of investors. Investors prefer funds with mezzanine and secondary strategies during market downturns, Kreutzer explained.