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US private equity fundraising labours

Capital raised by US private equity funds has fallen despite a rise in the number of funds raising capital.

During the first three quarters of 2010, 279 funds raised USD68.8bn, a ten per cent drop in capital raised from the same period last year when 266 funds secured USD76.7bn, according to Dow Jones LP Source, an industry database that tracks private equity fundraising.

"Although limited partners are willing to support strong performers and certain niche investment strategies, they are often committing the same size or smaller amounts than they did during the prior fund-raising cycle," says Laura Kreutzer, assistant managing editor of private equity at Dow Jones. "But for some firms, getting investors to a closing is like trying to sell dehumidifiers in the middle of the desert. People just aren’t buying."

Capital raised for buyout funds declined eight per cent as 110 funds raised USD41.6bn through the third quarter of 2010. A dramatic drop in capital raised by buyouts and acquisitions funds, a sub-sector within buyouts, dragged down the fund category. Buyouts and acquisitions funds raised USD12.7bn for 43 funds, a 41 per cent drop in fund-raising from the same period last year.

Increasing interest in distressed debt and industry-focused funds, both sub-sectors of buyouts, mitigated losses seen in other asset classes. Largely thanks to a USD3.5bn close by New Jersey-based Energy Capital Partners for its second fund, the industry-focused sub-sector saw 17 funds raise USD9.9bn, a 51 per cent jump from the same period last year.

Fundraising for distressed debt funds spiked 52 per cent to USD15.3bn raised for 23 funds.

Outside of the buyouts category, 22 mezzanine funds raised USD5.4bn, more than triple the USD1.6bn raised by 13 funds during the same period last year. Spurring the increase was a rise in deal flow as senior credit remained difficult to obtain.

Secondary fundraising remained weak as 12 funds raised USD8.5bn, a 26 per cent drop from the first three quarters of 2009.

US venture funds raised USD9.2bn for 103 funds during the first three quarters of 2010, slightly more than the USD8.9bn raised for 105 funds during the same period in 2009. This puts the industry on track to match 2009’s fundraising total, which was a six-year low.

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