Last year, 363 US-based private equity funds raised $265.6 billion, 18% below the recorded $325.8 billion raised by 506 funds in 2007, according to Dow Jones Private Equity Analyst. After three strong quarters of resistance, private equity fundraising slowed to a virtual standstill in the fourth quarter of 2008.A total of 99 funds raised only $43 billion in the fourth quarter, down significantly from the nearly $100 billion raised by 208 funds during the same period in 2007.
Expectedly, the buy-out segment suffered the most in 2008, with fundraising down 26% to $181 billion across 143 funds last year from $244.6 billion across 222 funds in 2007. At the nine-month mark, the buy-out sector was only down three per cent year-on-year.
For the first time in many years, buy-out firms’ proportion of overall fundraising declined, from 75% in 2007 to 68% in 2008.
Venture capital fundraising, which had been up by around four per cent 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 marks the lowest fundraising total for the venture industry since 2004.
Mezzanine fundraising soared to record heights on the back of Goldman Sachs Capital Partners’ $20 billion GS Mezzanine Partners V fund.
Funds of funds and even secondary funds both posted weak fundraising totals, down 55% and 36%, respectively.
“The drop in fundraising we saw in the fourth 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 record fundraising pace,” says 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 buy-out shops are considering fund size cuts and many limited partners are going to have trouble finding money to commit.”
D.C.