According to Preqin, 484 PE funds achieved a final close in 2010 and raised just $225 billion, the lowest amount since 2004. Fundraising was supposed to improve in fourth quarter but it didn’t pan out that way. Only 92 funds reached a final close in the time period, raising $32 billion, Preqin says. This is down substantially from the 195 funds in fourth quarter 2009 that raised $59.6 billion.
There were some notable closings in Q4. Stone Point Capital, in December, raised $3.5 billion. Sheridan Production Partners, an oil and gas company, formed in partnership with Warburg Pincus, raised $1.8 billion in November. Littlejohn & Co. also closed a $1.3 billion fund
The biggest close comes from the Blackstone Group, with its never-ending sixth pool. Blackstone Capital Partners VI raised a total of $13.5 billion in 2010, but the PE firm is still allowing investors to increase their commitments. The pool is expected to clock in at $15 billion sometime soon.
By comparison, private equity deals rebounded last year. Buyout shops took part in 3,380 transactions in 2010, valued at $225.4 billion. This is up from 2009, when there were 2,818 PE-backed deals, raising roughly $119.2 billion, according to Thomson Reuters.
Still, fundraising is seen improving this year and will exceed $300 billion, according to Preqin. There are currently 1,600 funds on the road seeking $600 billion, Preqin says.
One private equity exec says fundraising should rebound in 2011, because PE distributions picked up last year while allocations declined. Also, some of the better performing funds will be out raising money this year. “That was not really the case, with a few exceptions, in the last two years,” the source says.
Another buyout exec, whose firm expects to begin marketing soon, says the tone among LPs is much better and people are more optimistic. But LPs aren’t committing to many things, let alone anything new, the source says, “Everyone feels like the market should open up but the market hasn’t open,” the person says.
Also, big institutions are cutting commitments to firms they have invested with in the past, the person says. The scenario is bleaker for first time funds. Many institutions are refusing to commit to a new fund until after the first close. “Everyone is waiting to see what is real,” the buyout source says. “It’s a chicken and egg dynamic. It’s very hard.”
Who is out marketing or expected to go to market? Apax Partners is seen going to market for a $14.5 billion fund in 2011. KKR is also expected to start marketing for its next North American fund this year. The firm’s last North American fund raised $17.6 billion in 2006 and about 70%, or $12.7 billion, has been invested. KKR’s next fund isn’t expected to reach $18 billion, an executive has told peHUB.
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