Fundraising Slides in Second Half but Likely to Rebound in 2012

Just like M&A, fundraising floundered during the second half of 2011.

The fourth quarter saw 108 funds collect $52.4 billion, according to data from Preqin. The total is slightly lower than the $54.4 billion raised in third quarter, which was the weakest time period since the onset of the financial crisis, Preqin says.

Also, fourth quarter’s $52.4 billion is a 40% plunge from the $88.4 billion collected in second quarter, which Preqin says was a “strong” time for fundraising. But Preqin expects the Q4 figure to jump by 10-20% as more information becomes available.

In all, 603 funds held a final close in 2011, raising $262.2 billion. Buyout funds contributed most to the year’s totals; 92 funds raised a combined $69.2 billion. The largest pool came from Lexington Capital Partners VII, which collected $7 billion in 2011. Venture capital had the most; 133 funds closed in 2011 raising $32.3 billion, Preqin says.

Eric Zoller, Sixpoint Partners co-founder and co-CEO, doesn’t think things were that bad. “Fundraising, as a whole, was the strongest its been since the downturn began in late 2008,” he says. “Many funds closed at or above their targets.”

The first half of 2011 was clearly stronger, Zoller says. Pent-up deal activity resulted in a large number of exits. This caused LPs to receive more distributions, which they used to make new GP commitments, he says.

Things changed as volatility hit during the late summer. “As Europe deteriorated, the credit markets froze and the public markets sank,” Zoller says. “This caused fear to return and people to put new investments on hold. Exits slowed down and the positive feedback loop was broken.”

LPs, during the second half, took a “wait and see” approach, he says.

Still, Zoller thinks fundraising in 2012 will rebound. There are currently 1,823 funds on the road seeking $739.6 billion, Preqin says.

The public markets will continue to recover while M&A will likely rebound in 2012, Zoller says. “We’re seeing more investors looking to put more commitments out,” he says.