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Private Equity is Bouncing Back, Slowly

Private equity funds raised an estimated $57 billion in the third quarter of 2010, a 16% increase over the $49 billion raised in Q2, according to researcher Preqin.

A total of 81 private equity funds worldwide reached their final close in the third quarter.

The $57 billion figure is but a fraction of the rate the industry was pacing from 2006 to 2008. And while Preqin notes that the industry is still facing serious challenges, it expects funds to see improvements in the fourth quarter and into next year. Fundraising should rise slightly – 10% to 20% – in the fourth quarter and into the foreseeable future.

“Based on our conversations with institutional investors around the world, placement agents and fund managers, we are predicting that conditions will continue to improve slowly in 2010, with a more dramatic rise coming in 2011,” says Tim Friedman, a spokesman at Preqin. “We are projecting total fundraising for 2010 to reach around $260 billion by the end of the year.”

Here are a few tidbits from the latest Preqin report:

• Funds primarily focusing on the U.S. have raised the most capital during Q3 2010, with 37 funds raising a total of $41.1 billion. 21 primarily European focused funds raised an aggregate $8.3 billion, while 23 funds focusing primarily on Asia and the Rest of World region gathered a total of $7.8 billion.

• Buyout funds raised the most capital, with 11 funds raising an aggregate $20.4 billion. This figure includes Blackstone Capital Partners VI, which closed on $13.5 billion in mid-July. Five distressed private equity funds raised an aggregate $8.9 billion. 19 private equity real estate funds closed with total commitments of $8.8 billion. Three infrastructure funds closed raising $8.3 billion while 20 venture funds held final closes totaling $3.7 billion.

• After the number and aggregate fundraising target of funds in market fell consistently over the last year, Q4 2010 sees a small rise in both the number and value of funds being raised when compared to the previous quarter – possibly a sign of rising confidence among fund managers that conditions are starting to improve. There are currently 1,550 funds on the road seeking $573 billion worldwide.

• For funds closed in 2010 the average time taken was 19.8 months, double the average time taken in 2004 – further evidence of the challenging nature of the fundraising market.

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