Fundraising by private equity firms was hit badly by the global financial crisis last year, registering its worst year since 2004 with only $246 billion (Dh902.82bn) raised by 482 funds worldwide, according to the latest figures.
Data from Preqin, a leading source of information for the alternative assets industry, providing data and analysis via online databases, showed that only $35bn was raised in the fourth quarter of last year, which is the lowest quarterly fundraising since third quarter of 2003.
"Fundraising conditions have been extremely challenging in 2009, with a significant number of investors holding back from making new investments. Our survey of more than 100 leading LPs, conducted in December 2009, shows that just 60 per cent of investors have made new commitments in 2009, with many of these institutions investing in far fewer funds than in previous years," Preqin said.
"Although the recovery in the public markets and adjustment in private equity fund valuations has alleviated, the denominator effect that many investors were suffering from at the start of 2009, we are finding that many backers of private equity funds have fundamentally altered their attitude towards the asset class," it added.
Of the $246bn raised in 2009 globally, buyout funds raised the most capital,
with $102bn raised by 84 funds. As many as 170 venture funds raised $27bn, while 96 real estate funds raised $41bn.
In Q4 2009, 13 buyout funds closed with an aggregate $14bn, 24 venture funds closed with $4bn, and 17 real estate funds closed with $7bn.
Funds focusing primarily on North America raised the most in commitments over 2009, with 228 funds raising an aggregate $145bn. As many as 136 funds focusing primarily on Europe raised $74bn, while 118 Asia and Rest of World funds raised $27bn. In Q4 2009, North American funds raised $19bn, European funds $11bn, and Asia and Rest of World funds $5bn.
The average length of time taken for a fund to reach a final close has increased dramatically over the last two years, and now stands at more than 18 months for funds closed in 2009, up from one year for funds closed in 2007.
Over the course of 2009, 60 per cent of private equity investors surveyed made at least one new commitment to a private equity fund, while 40 per cent of investors did not make any new commitments.
"We are seeing investors focusing more on understanding the state of their existing portfolios and spending considerably more time when considering new vehicles. Negotiating terms and conditions have become more of a key concern, and we are seeing a trend away from the bigger mega-buyout funds towards more of a focus on smaller mid-market and regionally focused vehicles," Preqin report said.
"Although investors are in a much clearer position now than at the start of 2009, the chances of a return to the fundraising levels seen in 2007 and 2008 are very slim. As a result of the lack of distributions that they have received from existing investments, investors have less capital available to commit to new funds, and although the majority of investors will be active in 2010, it will be at a lesser rate than in recent years,'' the report said.
"It will not be until we see the market for exits recover significantly that we will see annual private equity fundraising attaining $500bn-plus levels once again."
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