There is a good analysis over on Financial News about trends and adaptation in private equity in the a recovery period following the financial crisis that began back in 2008. At that time, fundraising and the ability to complete buyouts suffered “dramatic” decreases in the immediate aftermath of Bank Lehman’s demise and have only recently started to improve.
Around USD 680 billion was raised in 2008 for private equity funds in the first six months of the year, and then less than USD 5 billion in the next six months following the crisis. According to Preqin, just USD 317.5 billion was raised in the following year by 932 funds.
The figures have yet to significantly increase, as the above graphic from E&Y shows. Last year, USD 365.4 billion was raised for 954 funds and so far this year USD 284.3 billion has been raised for 503 funds. On average, fundraising now takes 50% to 100% longer than it did before 2008, significantly longer than before.
The reasons for the slow recovery are that investors are being more selective. They are acting under the understanding that making money using leverage was not going to work going forward, especially in places where leverage is difficult to get, other than in the US, UK, Germany and France.
Trust between firms and investors was shaken when it came to valuation adjustments post-financial crisis when portfolios were marked down in value by 40% to 60%. The good news is that private equity teams are adapting and are now focused on acquiring only the best assets, despite fierce competition.
Another positive to note is that there hasn’t been as much of a reduction in the number of private equity players as predicted at the beginning of 2009, nor have divestments of fund allocations in secondary transactions been as high and sizable as expected, which shows that hope remains high among LPs. (Image Source E&Y)