U.S. private equity firms have raised $222.6 billion during the first nine months of 2008, up 11% from the same period last year, according to Dow Jones Private Equity Analyst, using statistics from the LP Source database. This was achieved despite fund-raising slightly lagging behind last year during the half-way point of the current year and despite a slow-down in buyout fund-raising on account of the credit crunch. The figures for the year-to-date period were bolstered by the distressed and mezzanine segments as more money was being channeled to these segments from buyout funds.
According to the report, U.S. private equity firms, which include venture capital, mezzanine, distressed, buyout and other types of firms, have not only continued to accumulate capital in the current year despite the crisis faced by the public financial markets, but have also accelerated their pace of fund-raising. In the year-to-date period, the $222.6 billion was raised in 264 funds. Private equity firms raised $200.4 billion in 298 funds a year ago.
Investors, known as limited partners, stopped investing in private equity after the venture bubble burst in 2000, thus missing out on some of the best years the industry has produced, the report said. However, these limited partners have now learnt their lesson and have continued to invest this time around, the report added. The freeze-up in the credit markets and the slower-growing U.S. economy have provided an opportunity to the private-equity asset class.
The report noted that distressed firms, which are now calculated in the buyout/corporate finance category, have evinced strong interest from investors in the current year. Eighteen funds have raised $37.9 billion so far in the year, up 28% from the $29.5 billion raised by sixteen funds during the same period last year. Oaktree Capital Management created a record for the largest individual distressed fund by raising $10.6 billion for OCM Opportunities Fund VII LP earlier in the year.
Meanwhile, mezzanine funds, which invest in debt that also carry characteristics of equity, accumulated $36.91 billion across thirteen funds in the year-to-date period, up sharply from $3.09 billion raised from nine funds in the year-ago period. Of this, Goldman Sachs Group Inc. (GS) has collected $20 billion, of which $7.5 billion is in the form of leverage, for GS Mezzanine Partners V LP.
Jennifer Rossa, managing editor of Dow Jones Private Equity Analyst said, "Were it not for the distressed and mezzanine segments, private equity fund-raising would have been weaker compared to last year. Buyout fund-raising continues to lag and fresh concerns about the availability of debt won't help."
The corporate finance and industry-focused buyout segments, the segment hit hardest by the credit crunch, witnessed a 12% decline in fund-raising. 78 funds raised $103.3 billion in the year-to-date period, compared to 98 funds that raised $118 billion in the prior-year period. Buyout firm TPG Capital said that it raised an additional $7.8 billion for TPG Partners VI LP, bringing its year-to-date total for the fund to $19.8 billion. The firm also accumulated $6 billion for TPG Financial Partners LP.
Venture capital fund-raising recorded a 3% increase to $19.71 billion raised in 107 funds, from $19.06 billion raised by 103 funds in the prior-year period.
In July, Dow Jones Private Equity Analyst had said that U.S. private equity firms raised $132.7 billion across 185 funds in the first six months of 2008, down 3% from the $137.2 billion raised by 199 funds during the first half of 2007. This was due to some of the big firms like The Blackstone Group (BX), Carlyle Group and Madison Dearborn Partners running into delays in raising capital for their buyout funds.
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