If you assumed that private equity has dried up because of the current turmoil in the financial markets, think again. Dow Jones Private Equity Analyst reports that US private equity firms raised $222.6 billion through the first three quarters of 2008 and are on pace to set an all-time record this year.
What’s hot? Investing in private equity funds created to buy distressed firms.
Private equity investing had been trailing the record 2007 pace in the first half of this year, but accelerated in Q3. With $222.6 billion raised through three quarters, 2008 is running 11% ahead of last year’s $200.4 billion for the same period. The full-year record set in 2007 was $313 billion.
Why are people investing in these tight times? “Limited partners have been saying that they intend to invest in private equity at a steady pace through the current downturn,” said Jennifer Rossa, managing editor of Dow Jones Private Equity Analyst. “Many of these investors have learned their lesson after the venture bubble burst in 2000. Back then, many LPs stopped investing in private equity, only to miss out on some of the best vintage years the industry has yet produced. This time around, they continue to invest, but they’re being very careful about which strategies they invest in,” she noted.
Funds focused on distressed firms are seeing strong interest from investors with 18 funds raising $37.9 billion thus far this year, up 28% from $29.5 billion raised by 16 funds at this point last year, according to the Dow Jones Private Equity Analyst analysis. Distressed firms raised a record $48.2 billion in 2007.
Oaktree Capital Management, a name familiar to many in broadcasting, set a record for largest individual distressed fund by raising $10.6 billion for OCM Opportunities Fund VII LP earlier in 2008.