Private equity investment nose-dives

Private equity investments crashed to a 12 year low in the first half of 2009 as buyout firms struggle to obtain debt finance to complete deals, according to the latest research from International Financial Services London (IFSL).

In H1 of 2009, private equity investments collapsed to US$24bn, a drop of 80% from the same period in 2008. Private equity-backed deals generated a mere 7% of global merger & acquisition volume in 2008, the lowest level since 2001 and down 21% from the record set in 2006. The figure fell even further to 3.5% in the first half of this year.

Fund raising also plummeted in the first half of 2009 by 60%, with only US$100bn raised between January and June. In the same period of 2008, fundraising fell 8% from the previous year, raising US$450bn.

The global private equity funds under management totalled US$2.5trn at the end of 2008. The 15% increase during the year was a result of strong fund raising activities and an increase in unrealised portfolio investments as firms were reluctant to exit stakes in a falling market.

Investments and funds raised in the UK fell 38% in the first half of 2009 and 21% in 2008. The UK was home to 17% of global investments and 14% of funds raised in 2008. But despite the fall in fundraising in the UK, London held onto the title of largest European private equity centre and remains second in the world behind New York.

While much of the private equity industry is struggling for survival, secondary funds are experiencing unprecedented success. A record of US$15.6bn was raised in the secondaries market during H1 of 2009.

Senior economist at IFSL, Marko Maslakovic said: “The slowdown in private equity investments and funds raised in the first half of 2009 is likely to persist for the rest of the year. Although banks will remain the largest lenders to private equity firms, other participants may have the opportunity to enter this market as some US$500bn in loans extended on existing deals will need to be refinanced in the next few years.”