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Bad Year for PE Firm Funding
According to research firm Preqin, private equity funds worldwide raised only $225 billion in 2010, the lowest number in six years. In fact, the year started off stronger than it ended: while Q1 2010 saw $73 billion raised, Q4 only netted $32 billion.
Nonetheless, Preqin expects fund-raising to exceed $300 billion in 2011, with most of the action coming towards years-end. �Market conditions are improving, and with deals and exits occurring at the highest levels for some time, investors will have to increase investments to maintain allocations�, says Prequin�s Tim Friedman.
We suspect that one of the headwinds faced by today's fund-raisers is what many limited partners did following the melt-down: reduced the proportion of their portfolio allocated to relatively illiquid alternative investments.
Another factor may be what some consider is the over-proliferation of PE firms, with a Darwinian winnowing now taking place as those with sub-par performance fail to raise new funds.
Finally, there's the rat's nest of regulatory red-tape from Sarbannes Oxley to Dodd/Frank that American PE firms must now wriggle through.
Bottom line: we think PE firm fund-raising will eventually rebound as a lagging indicator of the global economy but -- for the foreseeable future -- will fall far short of the levels seen in 2007.
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