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US private equity fund-raising falls as focus turns to smaller funds

US private equity fund-raising fell to USD45.1 billion during the first half of 2010, down 26% from USD61.2 billion raised during the same period last year, according to Dow Jones LP Source, an industry database that tracks private equity fund-raising.

The number of funds raising capital was static, with 198 funds attracting commitments during the first half of 2010, the same number as in the first half of 2009.
"The absence of mega buyouts, which drove private equity fund-raising to new peaks a few years ago, is now keeping the total capital raised at lower levels," says Jennifer Rossa, managing editor of Dow Jones Private Equity Analyst. "However, the number of funds that attracted commitments was stable over last year, signaling a recovery of sorts."
Buyout funds raised USD21 billion across 74 funds, down 35 per cent from USD32.4 billion raised by 75 funds a year ago, as limited partners’ interest in mega funds — those targeting USD6 billion and up — waned. During the first half of the year, the sector saw strong performances by small and mid-market funds.
The buyouts sector still accounted for the largest share of the capital raised although its percentage of the total pool declined to 47 per cent from 53 per cent in the year-earlier period. This is the first time since 2001 that buyout funds did not claim the majority of capital raised.
"As general partners who raised large funds a few years ago still look to deploy significant amounts of capital from those funds, limited partners hesitate to invest in similar vehicles," says Rossa. "This leaves the door open for the smaller buyout funds and industry-focused funds that had strong fund-raising performances in the first half."
Like buyouts, secondary funds and fund of funds were down from the year-earlier period. Twelve secondary funds raised USD8.4 billion, a 32 per cent drop, and 26 fund of funds raised USD3.8 billion, a 55 per cent drop from the first half of last year.
Mezzanine funds, in contrast, had a strong first half, raising USD4.4 billion for 14 funds, more than triple the USD1.4 billion raised for 10 funds in the year-earlier period.
After a difficult year of fund-raising in 2009,US venture funds raised USD7.5 billion for 72 funds during the first half of 2010, according to Dow Jones LP Source. That represents a 13 per cent increase from the USD6.6 billion raised for 68 funds during the same period last year. The jump was driven by substantial closes by established firms, as well as renewed interest in smaller venture funds.

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