Dow Jones & Co.: U.S. Private Equity Fund-Raising Continues Steep Decline, Drops 70% In Third Quarter

NEW YORK, Oct 08, 2009 (M2 PRESSWIRE via COMTEX) -- DJ | Quote | Chart | News | PowerRating -- The typically quiet summer months were slower than usual for U.S. private equity fund-raising with 72 funds raising $25.2 billion in the third quarter, a 70% decline from the same period last year. Through the first nine months of 2009, 265 private equity funds raised $79.9 billion, down 59% from the $195 billion raised by 315 funds at the same time last year, according to new analysis by Dow Jones Private Equity Analyst, a leading industry newsletter.

"Even as a boost in public markets provided some respite to limited partners' liquidity issues, many continue to give general partners the cold shoulder," Jennifer Rossa, managing editor of Dow Jones Private Equity Analyst said. "Limited partners are still capital-constrained and more cautious about committing only to firms they're sure can hit a minimum fundraising target, but there are some signs they're beginning to warm up. Several investors came out of hibernation in the third quarter, making their first investments of the year."

Buyout Funds Still Biggest Draw, But Also One Of Hardest Hit

According to Dow Jones Private Equity Analyst, leveraged buyout (LBO) and corporate finance funds continue to attract the largest proportion of capital investment, but still suffered a significant decline from a year ago. Buyout funds raised $49.4 billion through three quarters, a 65% drop from the $140.7 billion raised at this time last year. The decline is largely driven by the absence of larger funds from the market, as the 121 funds closed this year is on pace with 2008 which saw 126 funds close by the same time last year.

Still, two funds accounted for 26% of the total raised by buyout funds in 2009. Hellman & Friedman Capital Partners VIILP closed $8.8 billion, making Hellman & Friedman LLC the first firm to close a 'mega' fund in 2009. Popular during the private equity boom from 2006 to 2008, mega funds are those with an investment goal over $6 billion. TA Associates XI LP hit its $4 billion hard cap in August.

Distressed funds, a subcategory of buyouts, raised $9.8 billion across 21 funds in the first nine months of 2009. This is a 68% decline from the same time last year when a few large individual funds contributed to a total $30.6 billion raised by just 17 offerings.

Secondary Market Shows How Quickly Tables Can Turn

After reaching a record fundraising year by the end of the first half, the momentum in the secondary market has subsided. Secondary funds raised $165.3 million in the third quarter, bringing the total for 2009 to $14.3 billion across 21 funds, more than five times the $2.6 billion closed in 2008.

"Limited partners' investments in secondary funds have come to a screeching halt because deals are not getting done," said Ms. Rossa. "Secondary fund managers have an unprecedented amount of capital to invest and limited partners are interested in selling their assets, but the two sides have been unable to agree on a price."

"Brand-Name" Venture Firms Are Big Closers As Industry Hits 6-Year Low

Venture capital fund-raising is at its lowest level since 2003. The industry raised $8.0 billion across 83 funds so far this year, a 58% drop from the $18.9 billion raised by 141 funds at the same time last year. This marks the worst third quarter total for venture capital investment since 2003 when 53 funds raised $3.5 billion in the first nine months of the year.

Several brand-name firms did land new pools in the third quarter, including Matrix Partners which closed its ninth fund at $600 million and Khosla Ventures which wrapped up a pair of funds totaling $1.06 billion, mostly for cleantech investments. The debut fund by Andreessen Horowitz proved that technology stars can still command LPs' attention by closing $300 million.

The first three quarters of 2009 saw $1.4 billion invested in 11 mezzanine funds, down 94% from the same time last year and $6.9 billion put in 29 fund of funds, down 14% from this time last year.

Outside of Hellman & Friedman's and TA Associates' funds, the largest fund closing in the third quarter was held by Oaktree Capital Management which raised $1.6 billion in its OCM Opportunities Fund VIII LP fund.

For deeper analysis, download the complete report from Dow Jones Private Equity Analyst at www.fis.dowjones.com/PEA/3QUSPEFundraising.html. You can also follow the story at www.twitter.com/djprivateequity. For general information about Private Equity Analyst, visitwww.fis.dowjones.com/products/privateequityanalyst.html.

No statement herein is to be construed as a recommendation to buy or sell securities or to provide investment advice.

Copyright 2009, Dow Jones Private Equity Analyst

CONTACT: Kim Gagliardi, Dow Jones & Co Tel: +1 603 864 8873 e-mail: kimberly.gagliardi@dowjones.com

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