What downturn? Private equity still going strong
The financial sky may be falling, but it looks like private equity firms are relatively sheltered. In fact, fundraising by North American private equity firms during the first three quarters of 2008 is actually way ahead of fundraising during the same period last year, according to a report from Dow Jones Private Equity Analyst.
Private equity is a category that that includes buyout, venture capital, mezzanine, distressed and several other types of firms.
This year, 264 PE firms raised $222.6 billion by the end of September, compared to $200.4 billion raised by 298 funds at the end of September 2007.
That upswing is pretty counterintuitive, given the ongoing credit crunch. Keenan Skelly of Private Equity Analyst says the data reflects lessons learned during the last downturn — many limited partners (LPs) slowed their investing in 2001 and 2002, only to miss out when some of those funds turned out to be big winners.
However, that’s not to say that the stock market crash over the past two weeks won’t change things. With few deals getting done, and thus no way for PE firms to lock into returns on their investments, many investors in private equity firms will get nervous — or they will suffer credit crunches themselves — and will lack the money or the will to invest in the coming quarters. A PE downturn is long due.
Within the broader private equity umbrella, certain types of firms are thriving while others are struggling to bring in new money. Financing for venture capital funds, for example, is actually flat, with 107 funds raising $19.7 billion this year, compared to 103 financing funds raising $19 billion last year. Mezzanine funds (i.e., firms that back later-stage companies right before a planned exit) have grown tremendously, from $3 billion to $36.9 billion, while buyout firms’ fundraising fell from $118 billion to $103.3 billion.
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About the Author, Anthony Ha
Anthony is VentureBeat's assistant editor, as well as its reporter on enterprise technology, cloud computing, and tech policy. Before joining VentureBeat in 2008, Anthony worked at the Hollister Free Lance, where he won awards from the California Newspaper Publishers Association for breaking news coverage and writing. He attended Stanford University and now lives in San Francisco. Reach him at anthony@venturebeat.com. You can also follow Anthony on Twitter.