Private Equity: Sometimes you get what you need…

The Rolling Stones knew it well and private equity managers have had this lesson reinforced many times over in the course of the years and 2011 proved another steep learning curve. “You don’t always get what you want, but sometime you get what you need.”

Private equity managers saw wants and needs ebb and flow throughout 2011, according to the year-end report on private equity investing from Preqin. 2011 started out with some small improvements in fundraising, deal and exit conditions, as well as performance. The second half of the year proved to be a bit more challenging, according to Preqin, as the European debt crisis brought precarious economic conditions and investors pulled back. The latter part of the year also brought a new challenge–increased scrutiny of private equity by the press and the public as Mitt Romney with his connection to Bain Capital entered the U.S. presidential race.

The report says there was a “moderate increase in aggregate capital garnered by private equity funds that closed in Q1 2011 against the last quarter of the previous year; however fundraising remained below the aggregate $78.9 billion raised by the 164 funds to close in
the corresponding quarter of 2010 and far below the historical peak of $213.9 billion collected by the 398 vehicles that closed in Q2 2007. This gradual improvement continued into Q2 2011, when the 190 funds that closed attracted an aggregate $88.4 billion from investors, representing the largest total since Q2 2009.”

The second half of 2011 was considerably less sanguine as the European debt crisis expanded and fears of a global recession drove investors back into the corner. According to Preqin, private equity fundraising dropped to quarterly lows not seen since 2008. The third quarter of 2011 saw 141 vehicles raise $54.4 billion and the final quarter had 115 vehicles raise a collective $54.5 billion. This fed the post-crisis decline trends. For all of 2011, 635 funds raised an aggregate $272.9 billion. The report shows that 2009 saw 816 private equity funds raising $306.2 billion and 2010 had 727 vehicles bringing in $274.9 billion.

Following the Money

In December of 2011 Preqin interviewed 100 prominent private equity investors about their plans for the upcoming year. Here’s what they had to say:

  • Even in the face of the volatility in the latter half of 2011, 66% of the investors surveyed made new commitments in 2011.
  • 2012 leaves no room for complacency in fundraising, as 84% of the interviewed LPs expect to form new GP relationships at some point in the new year.
  • LPs remain wary of emerging managers. More than half (55%) of those interviewed said they would not invest in a first-time fund in 2012.

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