Private Equity Fund Raising Sets 1H Record

Private Equity Fund Raising Sets 1H Record

By Keenan Skelly
Of DOW JONES NEWSLETTERS

NEW YORK --For the first time in a long time, mega buyouts aren't
the only fund-raising game in town.
Certainly, buyout funds in general, and the biggest funds in particular,
continued to be wildly popular as the U.S. fund-raising market set a first-half
record, with 199 funds raising $137.2 billion, according to numbers from sister
publication The Private Equity Analyst. That's more than half of the way to last
year's full-year record, which now stands at $260.8 billion.
Of the total, LBO and corporate finance shops led the way, with 91 firms
raising $107.6 billion, or 78% of the total.
Just like last year, a handful of the largest U.S. buyout firms dominated the
landscape. Eight of the largest firms raised $37.4 billion, or 27% of the total
raised by PE firms. But worth more note was another subcategory within the
buyout pool that drove fund-raising totals up - distressed firms.
(A longer version of this story appears in the July issue of The Private
Equity Analyst, a Dow Jones & Co. publication that covers private equity.)
These firms raised $23.7 billion through the first six months of the year.
That's already ahead of the $19 billion annual record that distressed firms set
at the end of 2006, and indicates a potential shift in the private equity
landscape.
"The momentum of fund-raising for the big buyout funds may be changing," said
Ron Schmitz, Chief Investment Officer of Oregon State Treasury, a long-time
investor in private equity funds.
The numbers include firms that buy equity in distressed companies or debt with
an eye to gaining control. They also include only amounts raised in the current
year. For example, included is only $1.3 billion from Cerberus Capital
Management's new fund, Cerberus Institutional Partners LP Series IV, which
raised a total of $7.5 billion.
To be sure, the biggest LBO shops gave the appearance of smooth sailing in the
first half, with Blackstone Group (BX) and Kohlberg Kravis Roberts & Co.
continuing to take in capital for their latest funds, and Goldman Sachs & Co.
(GS) easily raising $20 billion for GS Capital Partners VI LP.
A number of other large firms are also returning to market quite quickly after raising their
previous funds, including Apollo Management, Carlyle Group, Madison Dearborn
Partners and Warburg Pincus.
Some say that despite a more tentative environment, these general partners
won't have any trouble raising their funds, pointing to the fact that strong
distributions of late have left many LPs with billions of capital to put to work
and no place to put it but buyouts.
"More capital is being distributed than invested in new companies," said Gary
Robertson, head of the private equity group at advisory firm Callan Associates.
But at the same time, many of the largest limited partners are clearly
becoming more cautious about investing in buyouts.
"The GP has got to demonstrate that in the current environment, the
opportunities are still there," said Stephen Nesbitt, chief executive of
advisory firm Cliffwater LLC, adding that mega firms will need to have
distributed some cash from their previous funds if they wish to raise new ones.
"If cheap financing won't continue, then what will take its place?"
Meanwhile, venture capital continued to be overshadowed by buyouts in the
first half, with 62 VC firms raising only $10 billion, 37% less than the $15.8
billion raised by 63 firms in the first six months of 2006.
The European fund-raising market roughly mirrored the U.S. market, as 81
private equity funds raised a total of $52.5 billion, up 17% from the $44.9
billion raised by 75 funds in last year's first half. That's also on pace for a
record.
European buyout firms accounted for the largest chunk, raising $36.1 billion,
or 69% of the total.