Buyout firms piling back into fundraising markets this year face raising far less capital than for their previous funds as investors limit the amount they are ready to give private equity for deals, according to Buyouts sister wire service Reuters. Many big name private equity firms reaching the end of their investment periods or running low on capital in their current funds are finding investors—particularly large pension funds—have less money for them.
Faced by a wave of fundraisings, investors are also ready to limit the number of firms they are prepared to back, seeing fewer high-quality deals for buyout firms to chase. “I see fund sizes will be dramatically smaller than they were last time around,” Bob Brown, managing director at
Private equity firms raised close to $2 trillion for deals between 2006 and 2008, peaking at over $650 billion in 2008 alone, according to the alternative asset data provider Preqin Ltd. That amount had slumped to some $225 billion in 2010, reflecting the sharp reduction in capital some investors have available for the asset class.
“Fundraising has still been difficult. It is picking up a bit, it isn’t what we saw in 2006-7, but you are seeing money coming back,” said David Rubenstein, co-founder of The
While deal sizes and volumes are inching back up following the credit crisis, and big U.S. pension funds are looking at private equity again to bridge their pensions funding gaps, they have much less to invest. One that may have put $15 billion in private equity at the peak will invest $3 billion today; one that invested $5 billion may only put in $1.5 billion, said Advent’s Brown. Some believe smaller funds will be more in keeping with the size and quantity of potential deals.
“Fund sizes will be smaller and more appropriately linked to the available investment opportunities,”
Increasing numbers of buyout firms who raised money at the peak but have now reached the end of their investment periods or have exhausted the money in their current funds, are expected to brave the market this year, a process that can take twice as long.
“We have 11 groups we are invested in who are in the market or will be in the market in the next two months,” said Kevin Tunick, managing director of private investment at
Simon Meads is a Reuters correspondent in London. Megan Davies and Philipp Halstrick also contributed to this report.