Looking Back: The Boom Years

The April 6, 1998, issue of Buyouts predicted a booming fundraising year ahead, even though the numbers for that year’s first quarter didn’t exactly set the market on fire. During the first quarter of 1998, U.S.-based buyout firms raised a total of $6.6 billion, less than the $7.4 billion accumulated during the same period a year earlier and down from $10.4 billion in the preceding quarter.

But 1998’s first quarter saw general partners launch funds seeking a total of $18.8 billion, more than the total sought by LBO funds during all of 1996 and almost half of the total targeted during 1997. Looking at those fund targets, a bevy of industry experts said that the fundraising boom that began in 1996 would keep on going.

Some of the firms raising funds a decade ago also appear on Buyouts’ most recent fundraising list. Back then, The Carlyle Group closed on $1 billion for its first European fund, J.W. Childs Associates LP was raising $900 million for its second fund, and Kohlberg & Co. had closed on $1.1 billion for its third fund. Today, The Carlyle Group is currently in the market with five funds of varying strategies, J.W. Childs is seeking $3 billion for its fourth fund, and Kohlberg & Co. just closed its sixth buyout vehicle with $1.5 billion, $500 million north of its target.

Cross-border deals were also coming into vogue. “One trend out there is domestic buyout guys are doing more international deals,” said Steven Costabile, then the director of alternative assets at Massachusetts Pension Reserves Investment Trust who is now a managing director at AIG Global Investment Group. It seems some patterns in the buyout world never change, as many limited partners today also want to back GPs that commit some portion of their capital to international investments.

Then, as now, mezzanine funds were popular investment vehicles. Goldman Sachs, which pulled in $16.3 billion for its fifth mezzanine fund during the first quarter of 2008, had just closed on $800 million for a mezzanine fund 10 years ago. Altogether, mezzanine funds closed on $456.5 million in the first quarter of 1998, compared to $20.5 billion for 2008’s first quarter.