Looking Back: The Fundraising Rollercoaster

Need it be said that this is a cyclical business? Given the breathless pace of fundraising in the last few years, it might be worthwhile to compare today’s heady pace with markets five, 10 and 15 years ago.

In the first half of 2007, U.S. firms set an all-time high for buyout, mezzanine and related funds, tapping investors for a whopping $143.8 billion, according to research from Buyouts and its publisher, Thomson Financial. At this rate, by the end of the third quarter, the industry will eclipse the $197.6 billion record tally raised in 2006.

Wind the clock back five years, and the picture isn’t nearly as rosy. In the first half of 2002, firms closed on just $6.5 billion, including a dismal $2.2 billion in 2Q 2002, according to the July 8, 2002, edition of Buyouts. The $6.5 billion, for what it’s worth, is less than one-third the size of Goldman Sachs’s recently closed vehicle (which, by the way, is the largest closed fund ever raised—at least for now).

At the time, LBO firms were dragging following the heady days of the dot-com boom. In the fourth quarter of 2001 alone, general partners raised $8 billion, a third more than was raised in the subsequent two quarters.

Go back five more years, to 1997, and a different picture emerges. Buyout firms raised $16.2 billion in the first six months of that year. It capped a 12-month span that saw a resurgence in fundraising, including $3 billion-plus funds raised by The Blackstone Group, Forstmann Little & Co. and Kohlberg Kravis Roberts & Co., according to the July 7, 1997, edition of Buyouts.

Dial back another five years, to 1992, and buyout firms again found fundraising a backbreaking slog with little reward. Firms struggled to achieve first closes, and just 13 buyout firms raised $2.6 billion in the first half of the year, according to the July 20, 1992 edition of Buyouts.

“I’ve been raising money of this sort for the last 23 years, and I would say this is as tough a period as any I can remember,” John Castle, chairman of Castle Harlan, said of his firm’s second fund, which at the time had closed on $160 million of a $250 million target after more than a year in the market.