Private Equity Fund Raising Lowest Since 2003
First, with tight credit, deal flow is going to continue to be down to there is no real sense of urgency to raise significantly more capital at the moment. Sure, you would always like to have the commitments, but it also needs to be put to use. Secondly, which ties to the first point, there is a significant amount of dry powder currently with the Private Equity firms themselves which has not been allocated yet. Fund raising had continued through the run up and subsequent bust while debt financing withered away leaving used funds. This is a significant barrier for further commitments from existing LPs. Lastly, the equity markets are moving again. LPs are taking advantage of the current market momentum to recoup losses from last year’s downturn. Additionally, they need to rebuild their overall portfolio values to free more dollars for Private Equity allocation. Even though the percentage allotted for Private Equity may have stayed the same from a percentage basis, the total dollar value shrunk along with the overall portfolio value leaving less room for new investment.
Overall, it is always good to have strong fund raising for Private Equity firms, however, this will not constrict deal flow once debt financing is more readily available. I anticipate a bullish run in 2010 as they start to take advantage of reduced asset prices.
