Private Equity Fundraising in 2009
Moving Past Dismal Private Equity Fundraising in 2009
It's important to realize just how bad last year was for private equity fundraising before we set about trying to improve on it. Fundraising in 2009 totaled just $246 billion, a 61% decline from the previous year. In just the last quarter of 2008, private equity firms hauled in $158 billion, so more than half of all capital raised in 2009. For tips on improving your fund marketing strategy look through this blog and
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Fund-raising actually got worse as the year went on, with the fourth quarter representing a low point for the year with only $35 billion raised by 75 funds –- the lowest quarterly total since the third quarter of 2003. To put that in perspective, the industry raised $158 billion in the fourth quarter of 2008 during the peak of the financial crisis.
The average fund size fell 13 percent, to $513 million this year, from $592 million last year. It also took private equity longer to raise the cash. The 25 largest funds took an average of 18 months to raise money in 2009, compared with 12 months in 2007, according to the study. Meanwhile, many funds have just given up trying raising more cash, as the study found that the aggregate target of funds on the road has now fallen to $698.5 billion, a 21 percent decline from its peak of $888.4 billion in January 2009. Source
Private equity portfolio companies are swamped with debt and many of these firms have defaulted on their obligations, adding more to the problems facing buyout managers. (Reportedly, roughly 50% of the 220 firms who defaulted on their debt last year were at least once owned by a private equity firm.)
Why is fundraising so tough? There are a number of reasons why it's difficult to attract investors to private equity funds but it's worse than simply concluding that investors have turned to more traditional investments such as mutual funds, stock and bonds. Here's part of the problem: Hedge funds aren't having much trouble reigning back in fleeing investors after they posted their best year in a decade.
It may be that institutional investors and high net worth individuals want to recoup their 2009 losses as quick as possible. Managers of institutional investment and wealth management funds could face layoffs if they aren't able to rebound after such a steep fall. Hedge funds present an alluring opportunity to make back those losses quickly; private equity funds, on the other hand, tend to invest long term and make take longer to realize their profits. Without a very stable IPO market, it's hard to keep investors' confidence up by promising profitable exits.
So what can private equity funds do? It's hard to say, until private equity funds can bring the kind of returns that hedge funds have in the last 12 months it will be an uphill battle convincing current investors not to jump ship and boost allocations to hedge funds (for now, the grass really does seem greener on the other side).
But it isn't all doom and gloom for private equity, buyout and venture capital firms are likely going to dominate the IPO market this year, making up for last year's slow market. As stock prices rise and market confidence returns, private equity funds will finally be able to debut those companies at a fair price and make the firm and their investors some much anticipated cash. This is of course assuming that the valuation gap narrows and the stock market strengthens in 2010.
There are also some appealing prospects abroad for private equity funds and in burgeoning sectors such as clean and bio tech and plenty of cash to invest with. It's hard to think things could go worse than last year (here's hoping it's uphill from here). There is always room for improving your marketing practices but until investors see actual returns, it's going to be hard to erase memories of last year.
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Tags: private equity marketing, private equity fundraising, private equity assets, private equity AUM, buyout funds, buyout fund marketing, private equity funds, private equity 2008, private equity 2009, private equity 2010
Link to This Resource: Private Equity Fundraising in 2009
http://privateequityblogger.com/2010/01/private-equity-fundraising-in-2009.html
