EUROPE - Pension funds and other institutional investors slowed down the pace of their private equity investment in 2002.
Banks and insurance companies saw the biggest decline, explained Chris Davison, head of research at AltAssets, the UK-based private equity research firm.
“Pension funds are still investing in private equity and more of them are taking the asset class seriously,” he said.
“But the rate of their commitments has slowed down as with many other institutions over the past twelve months.”
New research from AltAssets shows that European private equity fundraising remains fragile despite a positive second quarter.
During this time fundraising in Europe almost doubled quarter-on-quarter but remained well below 2002 levels, while fundraising in the US fell sharply again from the first quarter.
Davison said: “The lift in second quarter European fundraising is largely attributable to a stabilisation of the geo-political situation and it remains to be seen whether the pace of recovery will be maintained going forward.
“Sluggish interim closings would suggest caution rather than celebration but it is likely the first quarter will at least have marked the bottom of the cycle.”
Twelve European funds held final closes in Q2 with a combined total of e4.4bn. This compares with 11 funds attracting e2.1bn in Q1 and some e12.9bn in Q2, 2002. The drop reflects far lower fundraising by so-called mega-funds or funds worth over e1bn. Four of these mega-funds closed in Q2, 2002. The only one closed so far in 2003 was Nordic Capital, with e1.5bn of commitments in May, which has led to the growth of Scandinavian funds.
UK-based fund represented over four fifths of all commitments raised in 1H 2002, but less then half in the same period this year. Three Dutch funds also raised a total of e370m in 1H 2003.
In addition to final closings in Q2 2003, eight funds held interim closings worth e2.5bn, including the main contributor, 3i's Eurofund IV, on e2.1bn.
There were 22 final closes for 1H 2003 worth e6.6bn, compared with 32 final closes worth e16.7bn during the same period last year.
Buy-out funds remain the most popular investment choice, accounting for two-thirds of capital committed to funds holding final closings in the first six months of 2003.
Separately, US fundraising continued to decline. Some $4.1bn was raised by 15 funds in Q2 (2002 : $20.9bn), compared with $6.5bn raised by the same number of funds in the Q1.
But US pension plans remain a big source of capital, more so then their European counterparts, with larger players committing a typical $100m-200m per fund, said Davison.
“Fundraising conditions in the US are clearly still unforgiving,” he added.
“The second half is expected to see an improvement but it will be from a very low base.”
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