While the global credit and the merger-and-acquisition meltdowns have taken their toll on private equity funds, there’s still more than $1 trillion in “dry powder” for future deals, according to one 2008 review.
The contraction of capital raising in 2008 notwithstanding, private equity around the world still had the second-highest fundraising year in the history, in terms of capital commitments gained. The conclusion comes in a new report from Preqin, which provides information for the alternative assets industry.
For the past year, 768 funds raised a total of $554 billion in commitments. This was down sharply from 2007, when 1,045 funds raised $625 billion. And although the number of new funds was still off sharply from 2006, the amount of committed capital raised was actually up slightly, from $525 billion in 2006.
The 2008 fundraising, on top of the money already in the system, means that there is a significant level of uncalled capital, as dry powder is formally know. Using its performance data, Prequin estimates that the total level of dry powder available for private-equity investment currently stands at $1.02 trillion.
“Although the number of funds achieving a final close has dropped, the number of vehicles on the road seeking commitments remains at record levels,” says Tim Friedman, company spokesman, in a statement. He notes there currently are 1,684 funds targeting an aggregate $888 billion in commitments as of January 2009.
Fundraising clearly did sag in the second half of 2008 after peaking in the second quarter; total capital raised fell about 42 percent in the second half of the year compared with the first half.
Buyout funds represented the largest source of fundraising in 2008 among nine categories, accounting for about $216 billion, according to Preqin. This was followed by Real Estate (roughly $117 billion).
Funds focused on the U.S. raised $318 million. Preqin, however, notes that funds focusing on Asia and the rest of world have bucked the global trend, and have raised a record level of capital in 2008 for the region. Buyout funds account for the largest portion of this, with a total of $472 billion available. The top 10 managers in private equity have $197 billion in uncalled capital available to them alone, accounting for 19 percent of the global total.
Preqin also asserts that the majority of investors remain positive toward private equity. A survey conducted by the firm in December 2008 found that 29 percent of investors intend to increase their private equity portfolios in the medium to long term, while 67 percent intended to maintain their allocations. Just 4 percent of those polled intend to reduce their allocations to private equity in the future.