Congestion in the private equity market | FT Alphaville

Congestion in the private equity market

No, not at the deal-making end. And not when it comes to financing, as the backlog of leveraged loans slowly clears.

Numbers from Preqin suggest that private equity is encountering blockages when it comes to fund raising. Despite the dearth of deals since the end of easy credit last summer, investors have continued to fill private equity’s coffers.

But life is getting harder for the buyout groups. While the money has rolled in, with aggregate fundraising levels hitting $155bn in the first quarter, fewer funds have been making it to their final close. Mega-funds are doing well, boosting the overall levels of private equity asset gathering. But other funds are finding it harder to hit their targets.

1278.jpgThere are now 1,478 funds on the road, seeking a total of $844bn, says Preqin. The numbers courting investors has risen 13 per cent since January, and 61 per cent since the beginning of 2007.

Funds so far this year have spent an average of more than 14 months on the road before they closed – up from 12 months last year, and under 10 months in 2004.

So with more funds banging on their door for a contribution, investors are probably taking more time to assess their options- and increased allocations towards private equity among investor are unlikely to have kept pace with the rise in the number of potential recipients in the market.

As investors clamour to get into the best performing funds, and return continue to impress, the industry has been able to justify increased fees across the spectrum while the share of transaction fees distributed to investors has fallen. Will fundraising saturation prompt a rethink?

Related links
UK buyout returns outstrip equities – FT Alphaville
Private equity firms squeeze investors for more fees – Deal Journal