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U.S. private equity fund-raising defied expectations in 2010, declining even further from the low levels of 2009 as 336 funds raised $86.3 billion, down 16% from the $102.2 billion raised by 366 funds in 2009, according to figures from Dow Jones LP Source. While most sectors experienced a slowdown, 2010 saw a few bright spots as Distressed Debt funds, Mezzanine funds and Industry-focused funds raised more money than they did in 2009.
Although overall fund-raising was down for the year, in the fourth quarter, firms raised $26.7 billion in 65 funds, up 19% from the $22.5 billion raised by 101 funds in the same period in 2009.
"Despite high expectations for fund-raising in 2010, many firms ended up sitting by the edge of the pool so that they could focus on returning capital to investors," said Laura Kreutzer, managing editor of Dow Jones Private Equity Analyst. "As we head into 2011, more firms are diving into the fund-raising market, either because they have a better story to tell or because they can't afford to wait any longer."
Dow Jones LP Source classifies multiple fund closings (first, interim, final) separately, based on the year of the closing, to provide an accurate view of the annual fund-raising environment.
Mid-Market Buyout Funds Outshine Mega Funds
Buyout fund-raising garnered $53.3 billion across 138 funds in 2010, a 9% decrease from the $58.4 billion raised by 148 funds in 2009. In the fourth quarter, 32 Buyout funds raised $19.8 billion, a 53% increase from the same period last year.
Within the Buyout industry, Mid-market funds – those less than $1 billion in size – shined as firms with a tight focus on a specific industry managed to capture limited partners' (LP) attention. Industry-focused funds collected $15.2 billion in 2010, up from $10.1 billion in 2009. Overall, Mid-market funds accounted for more than half of total buyout fund-raising.
Mega funds, which are funds of $6 billion or more, continued to have a difficult time raising money in 2010. Only one U.S. fund, Blackstone Capital Partners VI LP, reached the mega-fund threshold in 2010, raising $14 billion. The $5 billion raised in 2010 for the Blackstone fund accounted for 25% of buyout funds raised in the fourth quarter and 9% of Buyout funds raised in 2010.
Distressed Debt, Mezzanine Fortunes Rise
Firms focused on Distressed Debt and turnaround investments represented a bright spot in 2010 fund-raising, as Distressed Debt funds attracted $18.4 billion, a 30% increase from 2009. Oaktree Capital Management LLC topped the distressed debt fund charts with a $4.4 billion final closing of Oaktree Opportunities Fund VIII LP, almost $3 billion of which was raised in 2010.
Mezzanine strategies also found favor among LPs in 2010, attracting $6.2 billion for 27 funds, up from $3.4 billion raised for 20 funds in 2009.
"In 2010, investors continued to bet that the economic recovery will be a lengthy one and that access to capital will remain constrained," said Kreutzer. "They also had the benefit of a healthy supply of experienced distressed debt and mezzanine firms that were marketing new funds."
Venture Capital Continues to Slide; Hits 7-Year Low
Venture Capital fund-raising fell to $11.6 billion across 119 funds, a 14% drop from the $13.5 billion collected by 133 funds in 2009. In the fourth quarter, 15 venture funds raised $2.4 billion, a 48% drop from the same period last year.
While LPs remained skeptical of the sector, a few firms pushed the envelope, notably Institutional Venture Partners. The firm raised $750 million for its latest fund, exceeding a $600 million target.
For a complete overview of Venture Capital fund-raising, visit http://www.dowjones.com/pressroom/releases/2010/01122011-4QVCFund-0102.asp.
To link to the Private Equity fund-raising report or download graphics, visit http://www.dowjones.com/pressroom/releases/2010/01122011-4QPEFund-0101.asp.
For more information about Dow Jones LP Source or Private Equity Analyst, visit http://privateequity.dowjones.com.
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