Private Equity Fund-Raising Strong, Buyout Inflows Weaken in Second Quarter

Tom Burroughes Deputy Editor London 4 July 2008

Private Equity Fund-Raising Strong, Buyout Inflows Weaken in Second Quarter

The turmoil in credit markets and slowing in private equity buyouts have chilled demand for buyout funds, new figures show, but other private equity funds focusing on areas such as distressed firms drew in strong inflows in the second quarter of this year, according to Private Equity Intelligence, the research firm.

“Despite continuing problems in the credit markets and the slowing of deal-flow in the buyout sector, private equity fundraising has continued to occur at a staggering pace, with a total of $161.9 billion raised in Q2 2008. When combined with our latest figures of $152 billion for Q1 2008, this gives a total of $314 billion raised in the first half of 2008 from a total of 355 vehicles achieving a final close,” Preqin said in its latest quarterly report.

This figure compares with the $321 billion sum raised in the first half of 2007.

Most private equity funds are unlisted and these are typically available only to high net worth individual investors and family offices or institutions such as banks, pension funds, life insurers and sovereign wealth funds.

Buyout funds have actually failed to raise as much capital as they did in the first quarter of 2008, collecting only $46 billion, or $61 billion if the $15 billion balanced Warburg Pincus X fund is included, which compares with $63 billion for buyout funds raised in the first quarter. Compared with the first half of last year, buyout fundraising is down by 21 per cent.

However, distressed debt funds and infrastructure funds have raised $28.7 billion and $11.4 billion respectively in the second quarter of 2008.

“Investor appetite for these funds is strong, and we have seen both fund types grow from being niche sectors in the industry to being major components of the private equity asset class. We are likely to see continued interest for these sectors in the second half of 2008, with added enthusiasm for these fund types possibly coming at the expense of the buyout market which may well struggle to raise capital in the coming months,” Tim Friedman, spokesman for Preqin, said.

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