Private Equity Fund-Raising Dropped 10% in First Three Quarters of 2010; Fund-raising for Distressed Debt funds spiked

Capital raised by U.S. private equity funds has fallen despite a rise in the number of funds raising capital. During the first three quarters of 2010, 279 funds raised $68.8 billion, a 10% drop in capital raised from the same period last year when 266 funds secured $76.7 billion, according to Dow Jones LP Source, an industry database that tracks private equity fund-raising.


“Although limited partners are willing to support strong performers and certain niche investment strategies, they are often committing the same size or smaller amounts than they did during the prior fund-raising cycle,” said Laura Kreutzer, assistant managing editor of private equity at Dow Jones. “But for some firms, getting investors to a closing is like trying to sell dehumidifiers in the middle of the desert. People just aren’t buying.”

Kreutzer added: “Over the next few months, we could start to see a fund-raising collision. Firms that no longer can afford to put off fund-raising could return to market, putting them in direct competition with firms that have been out marketing for the past six to nine months.”

Capital raised for buyout funds declined 8% as 110 funds raised $41.6 billion through the third quarter of 2010. A dramatic drop in capital raised by Buyouts & Acquisitions funds, a sub-sector within buyouts, dragged down the fund category. Buyouts & Acquisitions funds raised $12.7 billion for 43 funds, a 41% drop in fund-raising from the same period last year.

Increasing interest in Distressed Debt and Industry-Focused funds, both sub-sectors of Buyouts, mitigated losses seen in other asset classes. Largely thanks to a $3.5 billion close by Short Hills, N.J.-based Energy Capital Partners for their second fund, the Industry-Focused sub-sector saw 17 funds raise $9.9 billion, a 51% jump from the same period last year.

Fund-raising for Distressed Debt funds spiked 52% to $15.3 billion raised for 23 funds.

Outside of the Buyouts category, 22 Mezzanine funds raised $5.4 billion, more than triple the $1.6 billion raised by 13 funds during the same period last year. Spurring the increase was a rise in deal flow as senior credit remained difficult to obtain.

Secondary fund-raising remained weak as 12 funds raised $8.5 billion, a 26% drop from the first three quarters of 2009.
 
U.S. venture funds raised $9.2 billion for 103 funds during the first three quarters of 2010, slightly more than the $8.9 billion raised for 105 funds during the same period in 2009. This puts the industry on track to match 2009’s fund-raising total, which was a six-year low. For an in-depth analysis of venture capital fund-raising, visit http://bit.ly/Q310VC.