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PE Fund Raising Hits Five Year Low; Fund Sizes Getting Smaller

02 April, 2009
Private equity fund raising has dropped to its lowest level since 2003 in the first three months of 2009, says  Preqin, a London based research firm that tracks private equity fund raising globally.
 
The Q1 2009 represents the lowest fundraising quarter for the private equity industry since 2003, with only 71 funds having achieved a final close, raising an aggregate $45.9 billion compared to $125 billion raised in Q4 2008 – the lowest since Q4 2003 when $34 billion was raised by 131 funds achieving a final close. In terms of the number of funds closing, Q1 2009 is the lowest quarter since Q3 2003, when only 67 funds achieved a final close.
 
The numbers for India were not available separately, however, the data shows that a total of 17 funds focusing on the Asia and Rest of World region raised an aggregate $2.7 billion.
 
Funds focusing on the US represented the biggest group in terms of both number and value, with 39 funds focusing on the region raising $23 billion.
 
It is indeed a challenging fund raising environment with the lack of fund raising activity coupled with a record number of funds on the road creating an extremely competitive fund raising environment.
 
“Many of the fund managers we have been speaking with have indicated that they are going to be postponing the final closing of their current vehicles as a result of falling investor appetite,” said Tim Friedman, spokesperson for Preqin.
 
Some of the Indian funds out in the market to raise capital are India Value Fund, CX Partners, Blue River Capital, ICICI Ventures, Lazard and Tano Capital, among others.  While there have been few who managed to close funds in a difficult environment, most of them had to rationalise their targets as a huge fund size stands a little chance now.
           
CX Partners, the fund floated by Ajay Relan (ex-CVCI), initially had the target of raising $1billion, which they brought down to $750 million and finally to $500 million, sources told VCCircle.
 
Investors preference towards a fund with a smaller cap also originates from the fact that there are concerns being raised on putting money to work. With the real economy being hit so hard, even GPs with enough capital prefer to stay on sidelines, finding it hard to put money to work. LPs find teams raising a smaller fund size more comfortable and digestible.
 
“Let’s look at a number which is reasonable, you need to prove yourself in this market because in the last 4-5years, anyone who was touching anything was turning into gold,” said Rahim Penangwala, Head of India, Private equity, LGT Capital, a fund of funds.
 
Going forward, things could be more difficult, as only those with consistent track record, discipline and a realistic fund cap size would be able to raise money.
 
“We see at least one fund from India every week who are not only raising money in PE, but venture, real estate, distressed. Also from managers who do not have a previous track record of making investments. This is a tough environment where people want to see teams with consistency and want to see returns. The time of easy money was last 2-3 years. With the onset of 2008, things have gone much tougher,” said Penangwala.
 
Echoes Friedman: “We would expect Q1 2009 to be a low point for the industry in terms of fundraising. We expect that a number of institutional investors which have been holding back on making new investments will return to the market, and we predict that fundraising levels will increase throughout the year as a result, although with many institutions having significantly less capital available for new investments than in previous years, it may not be until 2010 that we see a return to anything like the levels of fundraising that we have seen in recent times.”

 


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PE Fund Raising Hits Five Year Low; Fund Sizes Getting Smaller

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