"2009 was the year of the equal opportunity slump for the U.S. private equity industry," Jennifer Rossa, managing editor of Dow Jones Private Equity Analyst said. "With the exception of the secondary market, firms across the board had a difficult time raising funds from limited partners who simply did not have capital to commit. As the liquidity market loosens up, limited partners will become more active but 2010 will not see a return to levels seen before the economic downturn."
Buyouts Account for Majority of Funds Raised Despite Drop in Mega Funds
Leveraged buyout and corporate finance funds, while still constituting the biggest slice of the capital pie, raised just $53.7 billion across 133 funds in 2009. This is a 73% drop from the $195.5 billion raised by 204 funds in 2008 and the sector's slowest year since 2003. In the fourth quarter, 35 funds raised $9 billion, an 83% drop from the same period last year.
Mega funds, which are funds of $6 billion or more, for the most part had a difficult time raising money in 2009. Six mega funds raised $14 billion, accounting for 26% of buyout fund-raising. More than half of the year's mega fund total was raised by Hellman & Friedman LLC, which raised $8.8 billion - all in 2009 - for Hellman & Friedman Capital Partners VII LP. In 2008, 12 vehicles raised $75 billion, accounting for almost 40% of the buyout market.
Distressed funds, a subsector of buyouts, raised $14.2 billion across 30 funds, a 67% drop from a record-breaking 2008.
Secondaries Spike, Set Record
The secondary market was the only subsector of private equity to turn in a strong performance. The $17.5 billion collected by secondary funds in 2009 is up 83% from 2008 and set a new record.
Several billion-dollar-plus funds, including Goldman Sachs Private Equity Group's $5.5 billion GS Vintage Fund V LP which accounted for 31% of the capital raised for secondary funds in 2009, lead the way in the record-setting year. In both 2008 and 2009, 21 secondary funds were raised.
"Thanks to a few large funds, the secondary market had a banner year," said Ms. Rossa. "The question now is whether firms will be able to deploy that capital. Unless buyers and sellers can come to an agreement on prices, firms will continue to sit on the billions of dollars slated for secondary transactions."
Venture Capital Fared Better Than Other Sectors
While still down significantly, venture capital firms did not have as difficult a year as buyout firms. Venture fund-raising fell 55% to $13 billion across 120 funds from the $28.7 billion collected by 204 funds in 2008. It was the slowest year since 2003 for the sector. In the fourth quarter, 21 funds raised $4.4 billion, a 56% drop from the same period last year.
A few of the big winners in 2009 were New Enterprise Associates which raised $1.2 billion, taking the total amount raised to date for the firm's 13th fund to $2.5 billion, and Norwest Venture Partners which closed its 11th fund in the fourth quarter after raising $1.2 billion.
Mezzanine funds raised just $3.3 billion across 20 funds, down 92% from $43.1 billion raised by 24 funds in 2008. In the fourth quarter, seven funds raised $1.7 billion, a 90% drop from the same period last year.
Outside of Hellman & Friedman's mega fund and Goldman Sachs Private Equity Group's secondary fund, the fund that closed on the most capital in 2009 was TA Associates Inc's 11th fund. In 2009, the firm collected $3.5 billion for its 11th fund which has raised a total of $4 billion.
