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US private equity fund-raising slowed to standstill in fourth quarter

After three strong quarters of resistance, private equity fund-raising slowed to a virtual standstill in the fourth quarter of 2008, according to analysis by Dow Jones Private Equity An

After three strong quarters of resistance, private equity fund-raising slowed to a virtual standstill in the fourth quarter of 2008, according to analysis by Dow Jones Private Equity Analyst.

It found that 99 funds raised approximately USD43bn in the fourth quarter, down significantly from the nearly USD100bn raised by 208 funds during the same period in 2007.

Overall, 363 US-based private equity funds raised USD265.6bn in 2008, 18 per cent below the recorded USD325.8bn raised by 506 funds in 2007.

‘The drop in fund-raising we saw in the fourth quarter marked a dramatic reversal from the first three quarters of the year, when private equity firms had been running slightly ahead of 2007’s record fund-raising pace,’ says Jennifer Rossa, managing editor of Dow Jones Private Equity Analyst.

‘While 2008 was still easily the second-best year on record, the decline we saw in the most recent quarter may steepen in the coming months, as some large buyout shops are considering fund size cuts and many limited partners are going to have trouble finding money to commit.’

According to Dow Jones Private Equity Analyst, very few areas of the private equity industry have proved immune from the economic crisis triggered by the Lehman Brothers bankruptcy in early September.

In particular, the buyout industry has seen its problems compound with fund-raising down 26 per cent from USD244.6bn across 222 funds in 2007 to USD181bn across 143 funds in 2008 – on par with levels seen in 2006.

At the nine-month mark, the buyout sector was only down three per cent year-over-year.

For the first time in many years, buyout firms’ proportion of overall fund-raising declined, from 75 per cent in 2007 to 68 per cent in 2008.

Venture capital fund-raising, which had been up by around four per cent at the end of the third quarter, also saw a drop-off by the end of the year. Venture firms raked in USD24.7bn across 150 funds in 2008, down 25 per cent from USD33.1bn raised by 182 funds in 2007. This also marks the lowest fund-raising total for the venture industry since 2004.

Mezzanine fund-raising was the lone bright spot, as fund-raising in this sector soared to record heights on the back of Goldman Sachs Capital Partners’ USD20bn GS Mezzanine Partners V LP fund.

Funds of funds and even secondary funds, normally considered well-positioned to benefit from market chaos, posted weak fund-raising totals, down 55 per cent and 36 per cent, respectively.

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