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private equity fund raising

Page history last edited by Brian D Butler 9 years, 9 months ago

 

 

 

 

 

 

Table of Contents

 


 

How are the deals financed?

  1. PE firms put cash in, and then they go externally looking for debt financing: 
  2. But, recently....with the credit crunch, there are alot of people out of the market that dont have CDO's, CLO's, redemptions, secondary debt is trading now at high 80's to low 90's cents on the dollar
  3. Brockway: "put 40 % equity in, and rest if financed with debt, and 60% of that is senior debt (Libor +400-450), and the rest is Mezzanine debt (15%)....which may be less leverage than goes into a home purchase.  see also our discussion about raising capital - ideas for the entrepreneur
  4. see also Venture Capital Fund Raising

 

 

 

private equity fund raising

 

Prominent global investors like the California Public Employees' Retirement System typically allocate around 10% of their portfolios to private equity.  For why this is....see our discussion on asset managment below...

 

From Pension Funds

 

According to data published by Private Equity Analyst, the 10 largest pension funds have committed 41% more capital to private equity in 2006 and 2007 than the five preceding years (2001-2005). Leading the way are CalPERS (California Public Employees' Retirement System), which increased its investment from $13.3 billion in '01-'05 to $22.3 billion in '06-'07; CalSTRS (California State Teachers' Retirement System), increasing its '01-'05 allotment of $8.9 billion by $3.4 billion for '06-'07; and the Washington State Investment Board, who's $9.6 billion commitment was nearly double the amount for the '01-'05 time period.

 

While the currently soft buyout market may put those limited partners in a bind as the '06 and '07 vintage funds hunt for investments, many of the larger LPs feel their options for allocating large sums of money are limited. Furthermore, overall weaknesses in financial markets are compressing these allocations as the total value of other asset classes is decreasing.

 

Nevertheless, fundraising activity continues -- Bear Stearns' private equity fund of funds has launched its fourth fundraising effort, J.C. Flowers is planning its third buyout fund (with a target of $7 billion) and Apollo Management has closed its third European real estate fund at $1.4 billion.

 

 

 

Changes in Asset Managment Industry

 

1.  Pension Funds dictate a move away from equity funds (stocks) and toward Private Equity & hedge funds

 

History:  Back in 2000-2002, there was an equity bear market.  

 

In response to this bear market, many pension funds (influential buyers of asset managers funds) realized that they had made a mistake by purchasing too many funds with exposure to equities.  The problem for pension funds is that they have fixed agreements to pay out benefits at some point in the future, and so being invested in equities was no longer deemed safe once they realized that equities could go down as well as up.  Some pension funds began investing in bonds, which were safer because they had guaranteed payouts in some specified time.  But, the problem is that Bonds did not pay out enough return, so the pension funds would need to invest much more upfront in order to meet future obligations.  They then began looking for alternatives. 

 

So, Pension funds began to look for "asset classes" that could profit from both an upswing and a downturn in the market.  Hedge Funds were deemed the perfect solution.  In addition to hedge funds, the pension funds also began looking more seriously at private equity and other "alternative assets" funds.

 

Read more in our discussion of asset managment

 

 

Trends in Fund raising PE

private equity trends 

 

1. In 2008, there has been extraordinary levels of fundraising in the Distressed Debt and Turnaround sector

 

2 Fundraising slowing down?  The private-equity industry is having trouble raising funds and meeting targets -- it seems fundraising is reaching a saturation point. Funds are currently taking an average of 14 months to close, almost 50% longer than they did in 2004. Reuters (05/20)

 

3.  Fund-raising not a leading indicator;  In core private equity markets such as buyouts and venture capital, fundraising is often a lagging indicator of underlying activity in the market. The process of raising a fund usually takes 12 to 18 months, and the momentum generated during its very first months in the market is crucial to final success.  Fndraising success often reflects the market environment at a fund’s launch more than the environment at a fund’s final close.

 

4.  PE fundraising still strong as of 10/2008: "Despite market woes, private-equity fundraising is still reaching record levels. Recent data show that for the first three quarters of 2008, the amount of money raised has exceeded the amount raised during the same period a year earlier. American City Business Journals/East Bay (10/7)"

 

 

According to The Private Equity Analyst, U.S. buyout fundraising saw a 20% decline in the first half of 2008, compared with the same period last year.  See our discussion on private equity fund raising

 

 

resource:   Global_Trends_VC_06.pdf 

 

 

Industry statistics

 

 

 

 

 

 

 

 

Links from GloboTrends

 

Private Equity

 

 

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