Private Equity Fundraising Hits The Skids In Q3

Oct 2 2009 | 2:32am ET

Private equity fundraising hit a nearly six-year low in the third quarter, as industry players offered fewer new funds—with dramatically lower fundraising targets—or abandoned fundraising altogether.

Funds holding their final closing in the third quarter raised just $38 billion, a 55% drop from the second quarter and a 68% drop from the third quarter of last year, according to a new report from Prequin. It was the smallest amount raised by the industry since the fourth quarter of 2003.

“Historical data shows that the summer months of Q3 often represent a relatively slow quarter for fundraising in any given year,” Prequin’s Tim Friedman said. “However, for the rate of fundraising to drop by nearly 70% over the course of a year is a dramatic fall, and demonstrates just how challenging it has become to raise new funds in the current climate. Many of the funds that are closing are doing so short of target, and we have seen a number of fund managers putting their fundraising efforts on hold until 2010, or abandoning them altogether for the foreseeable future.”

Just 1,574 funds are actively fundraising this month, down from almost 100 funds from earlier this year. What’s more, those funds that are seeking capital are looking for less, with an aggregate target of $754 billion, down from nearly $900 billion during the first half. And some 90 funds have given up fundraising altogether this year, three times as many as last year and six times as many as in 2007.

Given the weak fundraising environment, it’s also taking long for private equity funds to close. Fundraising now takes an average of more than 18 months, up from 15 months last year and 12 months in 2007. Just five years ago, the average amount of time spent fundraising was just 9.5 months. And it’s no wonder: Just three in five institutional investors polled by Prequin made a commitment to a p.e. fund in the first half, although 54% of them say they intend to make new investments this year, with another quarter planning to invest next year.

Another bright spot was the closing of Hellman & Friedman’s new fund, which Prequin called the largest p.e. fund that began fundraising in earnest after the collapse of Lehman Brothers.

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