Private equity slumps 30%
European private equity firms saw the value of funds raised decline by almost 30% in 2002, with the combined total of 27.4 billion euros raised by 57 funds far short of 2001’s 38.2 billion euros, according to private equity research firm AltAssets.
The tough market conditions of 2002 made it difficult for European private equity funds to raise capital, and some 48% fell short of their initial fundraising target. Many were also forced to decrease this target once they realised how difficult it would be to raise money, says AltAssets.
Only a third of European funds closed above target, the majority of which were from the buy-out sector. Buy-out funds made up just 30% of the total number of funds raised, though they accounted for much more in terms of value, at 69%. Venture funds on the other hand accounted for 28% of the number of funds raised, but only comprised 5% of the year’s value.
Their success of the buy-out sector is a clear sign that investors remain deeply disenchanted with the venture sector, and feel more comfortable with the risk profiles of buy-outs.
Says Chris Davison, head of research at AltAssets: “Venture firms had a very tough time, as you would imagine from the scale of the downturn in technology markets since the boom years, but the buy-out sector had a much more respectable experience in 2002.”
And Davison remains upbeat about the future of private equity. “2003 will be tough but it should not necessarily be any harder than last year. The expectation is that 2002 and 2003 will prove to have been good years for private equity firms to make investments. Certainly, healthy deal flow this year would be supportive of fundraising efforts. It would show investors that there is plenty of scope for all the money that has been raised over the last couple of years to be productively deployed,” says Davison.
In terms of geography, UK funds continued to make the largest portion of European fundraising, reflecting the fact that most pan-European funds are based in London, says the research.
UK-based funds made up 77% of the total value of funds raised in 2002, France-based funds followed at 12% and Scandinavian funds amounted to 4% of the European total.