Thursday, January 08, 2009

U.S. Private Equity Firms Raise $265.6 Billion in 2008, 18% Less Than 2007 as Fund-Raising Pulls Back in 4Q

Dow Jones Private Equity Analyst: U.S. Firms Raise $40 Billion in 4Q08, Down 60%; Fund-Raising May Decline Further As Firms Cut Fund Sizes, Delay Closings

NEW YORK, Jan. 8 /PRNewswire/ -- After three strong quarters of resistance, private equity fund-raising slowed to a virtual standstill in the fourth quarter of 2008, according to analysis released today by Dow Jones Private Equity Analyst.
Based on statistics from the LP Source database (, the newsletter reports that 99 funds raised approximately $43 billion in the fourth quarter, down significantly from the nearly $100 billion raised by 208 funds during the same period in 2007. Overall, 363 U.S.-based private equity funds raised $265.6 billion in 2008, 18% below the recorded $325.8 billion raised by 506 funds in 2007.
"The drop in fund-raising we saw in the 4th quarter marked a dramatic reversal from the first three quarters of the year, when private equity firms had been running slightly ahead of 2007's fund record pace," said Jennifer Rossa, Managing Editor of Dow Jones Private Equity Analyst. "While 2008 was still easily the second-best year on record, the decline we saw in the most recent quarter may steepen in the coming months, as some large buyout shops are considering fund size cuts and many limited partners are going to have trouble finding money to commit."
Economic Pains Felt Across Most of Private Equity Industry
According to Dow Jones Private Equity Analyst, very few areas of the private equity industry have proved immune from the economic crisis triggered by the Lehman Brothers bankruptcy in early September. In particular, the buyout industry has seen its problems compound with fund-raising down 26% from $244.6 billion across 222 funds in 2007 to $181 billion across 143 funds in 2008--on par with levels seen in 2006. At the nine-month mark, the buyout sector was only down 3% year-over-year.
For the first time in many years, buyout firms' proportion of overall fund-raising declined, from 75% in 2007 to 68% in 2008.
Venture capital fund-raising, which had been up by around 4% at the end of the third quarter, also saw a drop-off by the end of the year. Venture firms raked in $24.7 billion across 150 funds in 2008, down 25% from $33.1 billion raised by 182 funds in 2007. This also marks the lowest fund-raising total for the venture industry since 2004.
Mezzanine fund-raising was the lone bright spot, as fund-raising in this sector soared to record heights on the back of Goldman Sachs Capital Partners' $20-billion GS Mezzanine Partners V LP fund. Funds of funds and even secondary funds, normally considered well-positioned to benefit from market chaos, posted weak fund-raising totals, down 55% and 36%, respectively.
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