U.S. Private Equity Fund-Raising Halved in Q4

After three strong quarters of resistance, private equity fund-raising slowed to a virtual standstill in the fourth quarter of 2008, Dow Jones Venture Wire reports.

Based on statistics from the LP Source database, the Dow Jones Private Equity Analyst newsletter reports that 99 funds raised approximately $43 billion in the fourth quarter, down significantly from the nearly $100 billion raised by 208 funds during the same period in 2007.

Overall, 363 U.S.-based private equity funds raised $265.6 billion in 2008, 18% below the recorded $325.8 billion raised by 506 funds in 2007.

“While 2008 was still easily the second-best year on record, the decline we saw in the most recent quarter may steepen in the coming months, as some large buyout shops are considering fund size cuts and many limited partners are going to have trouble finding money to commit,” said Jennifer Rossa, Managing Editor of Dow Jones Private Equity Analyst.

Very few areas of the private equity industry have proved immune from the economic crisis triggered by the Lehman Brothers bankruptcy in early September.

Venture capital fund-raising, which had been up by around 4% at the end of the third quarter, also saw a drop-off by the end of the year. Venture firms raked in $24.7 billion across 150 funds in 2008, down 25% from $33.1 billion raised by 182 funds in 2007. This also marks the lowest fund-raising total for the venture industry since 2004.

The buyout industry has seen its problems compound with fund-raising down 26% from $244.6 billion across 222 funds in 2007 to $181 billion across 143 funds in 2008–on par with levels seen in 2006. Mezzanine fund-raising was the lone bright spot, as fund-raising in this sector soared to record heights on the back of Goldman Sachs Capital Partners’ $20-billion GS Mezzanine Partners V LP fund. Funds of funds and even secondary funds, normally considered well-positioned to benefit from market chaos, posted weak fund-raising totals, down 55% and 36%, respectively.