Private Equity Fundraising Dipped in Year’s First Half, But Still Strong: Venture and Mezzanine Segments Rise

Despite a near complete shutdown of the IPO market, U.S. private equity fundraising remained reasonably strong throughout the first half of this year—185 funds brought in $133 billion, coming in just under last year’s record pace, according to a new report from Dow Jones Private Equity Analyst. The venture capital segment performed particularly well, with 72 funds taking in $11.5 billion, up 15 percent from the $10 billion raised by 62 funds in last year’s first half.

In New England, 33 funds pulled in $21.9 billion, accounting for 27 percent of the total number of funds and 16.5 percent of all dollars raised. That was down in fund numbers but up in total dollars from the first half of last year, when 38 funds raised $19 billion.

It’s possible to take a glass-half-full or glass-half-empty view on the overall private equity figures. The total of $132.7 billion was just 3 percent off the record $137.2 billion raised by U.S. private equity firms in the first half of 2007. Pretty good for a down economy. At the same time, Dow Jones reports, it was the first year-over-year falloff in fundraising since 2003. So the party could be breaking up.

The biggest downturn in dollar terms came in the buyout/corporate finance category, which fell from $107.5 billion in the first half of 2007 to $85.5 billion in 2008. The Funds of Funds and Secondary categories also saw significant declines.

Still, the drops were almost offset by the venture capital and mezzanine funding categories. The venture segment showed gains in both the numbers of funds and dollars raised. And mezzanine fundraising set a new first-half record with $24 billion raised by seven firms—compared to just $2.3 billion last year. Almost all of it came from the $20 billion GS Mezzanine Partners V LP fund, but even without including that deal the category saw a large percentage gain.

New England was especially strong in the corporate buyout category, where 15 funds took in $16 billion. The dollar total was up sharply from the $12.6 billion raised by 17 funds in the first half of 2007. In venture capital, seven New England funds raised $1.6 billion. However, the dollar figure was down 45 percent from the first half of 2007, when 11 New England venture funds raised $2.9 billion. In the Fund of Funds category, six area funds raised $1.7 billion, compared to the $2.9 billion raised in the same period a year earlier. Four funds in the Secondary/Other category also pulled in $1.7 billion in the first half of this year—up from the $500 million raised by a single fund a year earlier. Mezzanine was the smallest category, rising from $70 million in the first half of 2007 to $825 million this year.

European private equity firms, meanwhile, saw strong gains in the year’s first half, with $61 billion invested in 80 funds, compared to $52.5 billion last year. “The differing fortunes of European private equity funds are an indication that limited partners are shifting some attention away from the U.S., where the economy is seen as particularly weak and where many of LPs are over-concentrated,” Jennifer Rossa, managing director of Dow Jones Private Equity Analyst, said in a statement.

Private Equity Fundraising

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