Private Equity Fund-Raising Continues Slow Climb in the U.S. and Europe

Dow Jones LP Source: U.S. Private Equity Funds Raised $64.7 Billion, European Funds Raised $24 Billion During First Half; Buyout and Venture Funds Helped Fuel the Recovery

Limited partners gradually picked up their commitment pace to private equity during the first half of 2011. According to figures from Dow Jones LP Source, U.S. private equity funds raised $64.7 billion for 201 funds in the first half of the year, a 35% increase in capital committed over the $47.8 billion raised by 225 funds during the first half of 2010. Buyout and venture capital funds drove the rebound in the U.S. and helped put the industry on pace to exceed last year’s fund-raising total.

European private equity funds collected $24 billion for 62 funds during the first half, up 48% from the $16.2 billion raised for 76 funds a year earlier. While fund-raising figures are still well below levels seen before the economic downturn, the first half of 2011 was the strongest first half for fund-raising since 2008.

“After three consecutive years of declining fund-raising, the industry has finally begun to dig its way out of the crater created by the U.S. financial crisis in late 2008,” said Laura Kreutzer, managing editor of Dow Jones Private Equity Analyst. “There’s an abundance of fund managers with strong track records that are back in marketing mode and investors appear to have regained some level of confidence in the asset class.”

Dow Jones LP Source classifies multiple fund closings (first, interim, final) separately, based on the year of the closing, to provide an accurate view of the annual fund-raising environment.

Buyout Funds Spring Back to Life

Thanks partly to a greater number of firms looking to raise funds of more than $1 billion, capital flowed into Buyout funds. U.S. Buyout funds raised $46.1 billion across 94 funds during the first half of 2011. This was almost double the capital raised for Buyout funds during the same period last year, one of the worst fund-raising years in recent history.

“In 2009 and 2010, the multi-billion fund was like the California Condor in the 1980s,” said Kreutzer. “You knew it once existed, but who ever really saw one? This year, while they aren’t exactly plentiful, the multi-billion funds have finally come off of the endangered species list.”

Within the Buyouts sector, fund-raising volumes were boosted by Industry-focused funds, which saw fund-raising almost double to $11.9 billion, and Restructuring and Distressed Debt vehicles, which saw fund-raising jump 50% to $12.6 billion.

In Europe, Buyout funds, which accounted for 84% of the region’s private equity industry, secured $20.1 billion for 36 funds during the first half, up from $9.3 billion raised for 35 funds a year earlier. As in the U.S., funds targeting more than $1 billion captured the bulk of the money.

Mezzanine and Secondary Fortunes Decline

U.S. funds focused on Mezzanine strategies saw a decline during the first half of 2011, as they attracted $2 billion for 13 funds, a 56% decrease in commitments from the same period in 2010. Meanwhile, the amount raised by Secondary funds dropped 62% to $3.2 billion for 11 funds.

“Mezzanine and secondary funds typically enjoy more popularity during market downturns,” said Kreutzer. “Many of the experienced managers in each of these sectors raised capital in 2009 or 2010, so it’s hardly a surprise that their numbers have dropped off this year.”

Two European Mezzanine funds raised $885 million in the first half of 2011, down 8% from the same period a year earlier. Secondary funds focused on Europe ran counter to the trend in the U.S. as four funds raised $1.7 billion, a 66% increase in capital committed over the first half of 2010.

U.S. Venture Fund-Raising Shines for Some, but European Funds Still Struggle

In the U.S., brand name venture firms raising anything other than an early-stage fund were the biggest draw for limited partners during the first half of 2011. Capital raised for venture funds rose 19% over the same period a year ago, hitting $8.1 billion, but the number of funds that held closings plummeted 38% to 50 funds. Seven firms were responsible for raising $6.3 billion of the $8.1 billion collected during the first half.

The story for European venture funds was one of struggle as these funds recorded the worst first half since 2004. Fund-raising for European venture funds declined 45% to $1.1 billion for 16 funds.