GLOBAL - Private equity funds have raised only $150bn (€101bn) in the primary market so far this year as the financial crisis has made investors more cautious, according to private equity placement agent Triago.
This compares to $620bn raised in 2007 and an average of $200bn for the last 10 years. Investments in buyout and venture capital funds, in particular, have dropped to record lows.
“The 2005 to 2007 period was too good to be true,” says Antoine Dréan, CEO at Triago. “Private equity funds made a lot of money in that time on the back of the credit bubble.”
Private equity investments by traditional investors such as pension funds have been reduced recently, as schemes need to raise their funding levels in the aftermath of the financial crisis.
“However, some are taking advantage of market conditions and get involved in the buying as well as the selling, as the secondary market has become widely accepted as a tool and sports an increasingly diverse population of buyers,” said Dréan.
As a result of the crisis, some private equity funds will now be forced to restructure and change their fees, their lock-up periods as well as investment horizons. But those that are successful are still attracting investors who are prepared to pay the fees and invest for the long-term, according to Triago.
And Dréan said general partners (GPs) are still looking for help on the primary business side. “In the secondary business, sellers still outweigh buyers even though prices have been picking up recently, allowing for much more secondary activity over the last few weeks,” he said.
On the primary side, the popular funds include mid-market buyout funds, sector-specific funds, country-specific funds, growth capital funds and niche funds. “Turnaround funds are the flavour of the year,” added Dréan.
Since Triago started out in 1992, the private equity market has grown from $15bn to $1.5trn in assets under management, according to Dréan.