Record Year for Private Equity Fundraising

The total capital raised by U.S. firms was 33 percent higher than in 2005 and 22 percent higher than the previous record, in 2000.

Private equity firms have risen so far in size and influence that “Barbarians at the Gate,” the chronicle of Kohlberg Kravis Roberts’s $31 billion takeover of RJR Nabisco, may soon read like ancient history.

In 2006, U.S. private equity firms — including buyout and corporate finance funds, venture capital, mezzanine funds, and funds of funds — raised a mind-boggling $215.4 billion among 322 funds, according to Dow Jones Private Equity Analyst, a newsletter that has been tracking capital flowing into this asset class since 1991. The total capital raised by U.S. firms was 33 percent higher than in 2005 and 22 percent higher than the previous record, in 2000.

“The robust fund-raising climate was buoyed by investors’ willingness to plunge ever-larger sums into this asset class as well as buyout firms pursuing bigger acquisitions at a faster pace,” wrote Jennifer Rossa, managing editor of Private Equity Analyst, in a press release. “We saw buyout firms willing to put this war chest of capital to work right away and take advantage of cheap debt in the market as they made sizeable deals over the year.”

Buyout funds played a dominant role, reportedly accounting for $148.8 billion of the total raised last year. The largest funds were raised by Bain Capital, First Reserve, Kohlberg Kravis Roberts, and Texas Pacific Group.

Not surprisingly, buyout funds accounted for most of the largest deals announced in 2006. They include last November’s offer by Blackstone Group to buy Equity Office Properties Trust for about $20 billion, plus the assumption of $16 billion in debt. The $36 billion bid for the real estate investment trust would make this the largest leveraged buyout in history — if it’s not topped by hedge fund and buyout firm Cerberus Capital Management, which reportedly is mulling an even higher offer.

Private Equity Analyst also noted that venture capital funds, which were responsible for much of the activity during the previous record year of 2000, raised $25.1 billion last year, a 2 percent decline from 2005. However, mezzanine funds raised $20.4 billion, a record one-year total for the class and five times the total for 2005.

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