GLOBAL - Worldwide private equity fundraising has plunged in the third quarter of this year to levels unseen since 2003 following the dot com bubble, latest data from Preqin revealed.
The firm found the aggregate capital raised by funds holding a final close in the third quarter was US$38bn, which represents a significant drop from the second quarter fundraising of $84bn, and even more from last year's third quarter fundraising of $117bn.
Preqin spokesman Tim Friedman said although historical data showed that third quarters are slow ones for fundraising in any given year, the drop by nearly 70% over the course of a year was a "dramatic fall".
He said: "The question for the industry is whether current sentiment is indicative of a long-term shift away from private equity, or whether it represents a short-term hiatus.
"Our recent survey of institutional investors in the sector would suggest that the latter is the case, with a whole swathe of significant private equity limited partners readying themselves to re-enter the market in the final quarter of this year and into 2010."
He added: "Nonetheless, private equity fundraising is set to remain challenging, and we expect firms without a strong track record to continue to struggle in gaining commitments from a more wary investor community."
Preqin tracked 28 North American focused funds closing in the quarter, 26 European focused funds and 25 funds focused on Asia and rest of the world.
The North America funds raised $25.8bn; the European funds, $5.2bn and the Asian funds, $6.8bn.
This report comes as private equity giant Hellman & Friedman closed its Hellman & Friedman IV fund at $8.8bn, which is the biggest closing of the quarter.
IE Consulting managing principal Matthew Craig-Greene said: "Unsurprisingly, commitments to new funds have slowed since pension funds and other institutional investors in private equity have been faced with the issue of the performance of funds already in their portfolios. Time spent dealing with current portfolios has meant less time to evaluate new propositions, including those from incumbent managers."
He added: "New commitments to funds are often at least partly funded by distributions from previous deals. Difficult exit markets have slowed these distributions to a trickle, compounding the difficulty for institutional investors to make new investments. Naturally, this makes it tougher to close a fund."
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