U.S. private equity firms raised a record $302 billion in 415 funds in 2007, despite the credit crunch and concerns about an economic downturn.
This marks a 19 percent increase over the $255 billion raised in 404 funds during 2006. That these firms are raising record amounts of cash is remarkable because there are already signs the industry is struggling. Buyout firm Blackstone, for example, went public when hype about private equity was at its peak, and its stock price has swooned ever since, hitting record lows yesterday. The cost of financing expensive buyouts has gone up, and it’s difficult to sell companies for a profit.
The recent buyout stats come from Dow Jones Private Equity Analyst.
However, much of the growth within the LBO fund category area — which makes up the lion’s share, or 75 percent, of the fundraising — can be attributed to boom in “distressed-focused” funds, which got nearly $45 billion in 22 funds. That is almost three times the previous annual investment record of $16 billion set in 2006. Distressed funds are those seek to exploit a coming downturn in the market, where they buy up companies that have themselves fallen on tough times.
The year also saw the largest LBO fund ever: Blackstone Group’s $21.7 billion fifth fund.
Note: We were skeptical about Blackstone’s IPO from the beginning. Also, Stu Phillips talked about the private equity bubble a year ago, and no one took him seriously.
