Private Equity Capital
New Report Shows Drop in Private Equity Capital
Private equity is feeling the effects of the financial turmoil, according to a new report released by Preqin. The financial crisis has made it increasingly difficult for private equity firms to raise capital, as investors are more reluctant to invest in sometimes risky private equity funds. The report shows a somewhat unsettling decline in private equity raised. In the third quarter, only $82.3 billion was raised by 117 funds, the lowest since Q1 of 2005.Private equity funds have raised a little more than $400 billion this year, the report suggests that most of that capital came from private equity's peak during the first quarter of 2008. Since then capital has been very difficult to obtain for private equity funds. This is especially true for small and middle market funds that have limited resources for finding investors, compared to the largest private equity funds that rely on vast resources and previous Limited Partners to maintain a steady flow of capital. Also, the big private equity funds have an established reputation that is more appealing to wary investors than smaller, less-proven funds. Limited Partners are looking almost exclusively to low-risk funds, making it difficult for new private equity funds to emerge.
While funds focused in the U.S. and Europe raised the most capital in the third quarter, other regions showed signs of future competition as European private equity funds slipped especially. According to the report, "This represents an especially inactive quarter for European fundraising, 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." Although buyout funds were the most popular type of private equity, the amount of capital raised by buyout funds dropped significantly from earlier quarters.
Secondary source: CFO
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