US private equity fundraising closed out its worst year since 2003 with 331 funds raising $95.8bn, down 68 per cent from the $299.9bn raised by 508 funds in 2008, according to figures from Dow Jones LP Source. With the exception of secondary funds, every sector experienced sharp slowdowns.
In the fourth quarter, firms raised $20.5bn in 75 funds, down 80 per cent from the $102.7bn raised by 188 funds in 2008.
Jennifer Rossa, managing editor of Dow Jones Private Equity Analyst, said, “2009 was the year of the equal opportunity slump for the US private equity industry. With the exception of the secondary market, firms across the board had a difficult time raising funds from limited partners who simply did not have capital to commit. As the liquidity market loosens up, limited partners will become more active but 2010 will not see a return to levels seen before the economic downturn.”
Leveraged buy-out and corporate finance funds, while still constituting the biggest slice of the capital pie, raised just $53.7bn across 133 funds in 2009. This is a 73 per cent drop from the $195.5bn raised by 204 funds in 2008 and the sector’s slowest year since 2003. In the fourth quarter, 35 funds raised $9bn, an 83 per cent drop from the same period last year.
Mega funds, which are funds of $6bn or more, for the most part had a difficult time raising money in 2009. Six mega funds raised $14bn, accounting for 26 per cent of buy-out fundraising. More than half of the year’s mega fund total was raised by Hellman & Friedman, which picked up $8.8bn – all in 2009 – for Hellman & Friedman Capital Partners VII. In 2008, 12 vehicles raised $75bn, accounting for almost 40 per cent of the buy-out market.
Distressed funds, a subsector of buy-outs, raised $14.2bn across 30 funds, a 67 per cent drop from a record-breaking 2008.
The secondary market was the only subsector of private equity to turn in a strong performance. The $17.5bn collected by secondary funds in 2009 is up 83 per cent from 2008 and set a new record.
Several billion-dollar-plus funds, including Goldman Sachs Private Equity Group’s $5.5bn GS Vintage Fund V, which accounted for 31 per cent of the capital raised for secondary funds in 2009, lead the way in the record-setting year. In both 2008 and 2009, 21 secondary funds were raised.
“Thanks to a few large funds, the secondary market had a banner year,” said Rossa. “The question now is whether firms will be able to deploy that capital. Unless buyers and sellers can come to an agreement on prices, firms will continue to sit on the billions of dollars slated for secondary transactions.”
While still down significantly, venture capital firms did not have as difficult a year as buy-out firms. Venture fundraising fell 55 per cent to $13bn across 120 funds from the $28.7bn collected by 204 funds in 2008. It was the slowest year since 2003 for the sector. In the fourth quarter, 21 funds raised $4.4bn, a 56 per cent drop from the same period last year.
A few of the big winners in 2009 were New Enterprise Associates which raised $1.2bn, taking the total amount raised to date for the firm’s 13th fund to $2.5bn, and Norwest Venture Partners which closed its 11th fund in the fourth quarter after raising $1.2bn.
Mezzanine funds raised just $3.3bn across 20 funds, down 92 per cent from $43.1bn raised by 24 funds in 2008. In the fourth quarter, seven funds raised $1.7bn, a 90 per cent drop from the same period last year.
Outside of Hellman & Friedman’s mega fund and Goldman Sachs Private Equity Group’s secondary fund, the fund that closed on the most capital in 2009 was TA Associates’ 11th fund. In 2009, the firm collected $3.5bn for the fund, which has now raised a total of $4bn.
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