Global PE Fundraising Drops in Second Quarter

Private equity fundraising is tough right now.

Globally, PE firms raised $41.3 billion in second quarter, the lowest total since 2003, according to data from Preqin. The second quarter results are also down 55% from the $92 billion amassed by PE firms in second 2009.

The number of firms marketing has also dropped. There are currently 1,522 funds on the road seeking $560 billion worldwide, down from the 1,622 funds seeking $807 billion in third quarter 2009.

Credit issues in Europe continue to weigh on investors, one buyout executive says. “People are nervous and the markets are volatile,” the source said. “Fundraising will be very difficult until the world settles down.”

But a second PE exec, whose firm expects to go to market soon, blames liquidity and over-commitment issues at the LPs. “Many LPs just don’t have the money to commit big dollars right now,” the executive says. “They are still licking their wounds from the massive 2006 and 2007 commitments and/or many fund of funds are having trouble raising new money.”

The U.S. raised the most capital in second quarter, with 46 funds raising $24.3 billion. This compares to 19 funds in Europe that raised $8 billion while Asia, and the rest of the world, had $9 billion.

Closing a fund is also taking more time. In 2010, it took fund managers about 19.8 months to close a fund, nearly double what it took in 2004, Preqin said. Consider Madison Dearborn Partners, the Chicago buyout shop, which came in with the largest fund closing in second quarter. After reportedly spending 28 months marketing, the final close for Madison Dearborn Capital Partners VI occurred in May. But the fund came at $4.1 billion, well below its original target of $10 billion.

The Blackstone Group is another PE firm that is taking forever to close a fund. Blackstone was expected to announce the final close for BCP VI this week. Blackstone spent about two years marketing the fund with an original target of $20 billion, which was cut to $15 billion and then, most recently, to a little north of $12 billion.

Calls to Blackstone and Madison Dearborn were not returned.