PE fund-raising falls 49% to $91 bn

PE fund-raising falls 49% to $91 bn

New York: Private equity (PE) fund-raising in the third quarter fell 49% from a record as managers competed for a dwindling pool of money from investors to finance leveraged buyouts (LBOs).

Fund-raising dropped to $91 billion (Rs3.6 trillion) from $177 billion in the previous three months, according to a report from London-based researcher Private Equity Intelligence Ltd.

Deal making slowed in July after US subprime mortgage defaults hit a record in the first quarter, sparking a global credit crunch. The Standard & Poor’s 500 index fell 8.3% from 20 July to 15 August.

Apollo Management Lp., Carlyle Group and Kohlberg Kravis Roberts & Co. (KKR) are among the biggest firms seeking money for new funds. Well-established firms may win commitments more easily because they can tap existing investors, the report said.

“With the butter already being spread thinly, firms have already had to change their original plans for fundraising to adapt to the current market conditions," according to the monthly report.

PE firms have announced a record $734.5 billion in deals so far this year, Bloomberg data show. About two-thirds of the acquisition price of many LBOs is paid with debt.

Investment banks face the prospect of being stuck with LBO loans on their books. They are selling about $300 billion in debt they offered PE firms to finance their deals. New transactions are scarce as investors purchase debt for transactions including KKR’s buyout of First Data Corp.

Still, any signs of life may help fund-raising since pension funds, endowments and wealthy families remain intent on increasing investment allocations to PE, according to the report. “If the global credit markets improve, this could bolster?LPs’ confidence, and we could witness a mini-boom in fund-raising," the report said, referring to limited partners.

Venture funds and mezzanine funds are having success attracting investors, the report says. Goldman Sachs Group Inc. is raising a $20 billion mezzanine fund to invest in equity and debt securities for firms as an alternative to an?LBO. Mezzanine capital refers to unsecured, high-yield debt used in LBOs.