PE hit by crisis, suffers lowest quarter since 2005

PE hit by crisis, suffers lowest quarter since 2005
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First Published: Thu, Oct 09 2008. 03 48 PM IST
Updated: Thu, Oct 09 2008. 03 48 PM IST
New Delhi: Fund raising activity through private equity route across the world has dampened by the ripple effect of the global financial turmoil as $82.3 billion capital was raised during July-September, the lowest ever in a quarter since 2005.
“The troubles affecting the global financial markets have taken their toll on private equity fund-raising, with fund-raising figures for Q3 2008 are at the lowest they have been since Q1 2005,” according to research done by Preqin, an alternative-asset information provider.
There were total 117 funds which achieved a final close worldwide in the third quarter of this year, raising an aggregate $82.3 billion in capital. While, during the same quarter in 2007, as much as $118.7 billion was raised through 213 deals.
“Private equity fund-raising is set to enter its most challenging era of all time... 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,” Preqin spokesman Tim Friedman said.
Firms may shelve their fund-raising efforts until the market becomes more settled and investors become more receptive to making new investments.
“Although there is no evidence that investors are turning away from the sector, there is a strong suggestion that the current situation is serious enough to lead to new investment decisions being delayed until the long-term global outlook becomes clearer,” Friedman added.
An analysis of the 12-month rolling fund-raising for the global private equity industry says that over a longer time frame fund-raising is now beginning to decline after reaching a peak in Q1 2008, Preqin said.
The industry was growing rapidly up until 2008, with quarterly figures regularly exceeding those of the previous year. However, the situation is now changing, and in 2008, we are seeing fund-raising falling below that of the previous year, especially in terms of the number of funds raised, which is currently down almost 50%.
Interestingly, funds focusing the US raised the highest levels of capital in Q3 2008, with 61 vehicles gathering $57.9 billion, while 31 Europe-focused funds raised $11.9 billion, 25 funds focused on Asia and the rest of the world raised $12.5 billion.
“This represents an especially inactive quarter for European fund-raising, 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,” Preqin said.
In terms of type, buyout funds were most popular, with 35 funds raising an aggregate $43.2 billion. A total of 23 real estate focused funds raised an aggregate $23.7 billion, a total of $9.3 billion was raised by 38 venture funds, significantly down from the $21 billion raised by the sector in the corresponding period a year ago.
Meanwhile, fund-raising has become increasingly competitive, and with investors currently reluctant to make new investments as a result of the global financial climate, it is becoming harder than ever for fund managers to raise capital.
A recent piece of Preqin analysis indicates that fund-raising is now taking an average of 14.2 months to complete, up from 12 months in 2007, and 11.1 months in 2006.
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First Published: Thu, Oct 09 2008. 03 48 PM IST