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Despite the region’s economic resilience, Asia saw a big fall in private equity fundraising during the downturn. Funds raised around US$28bn in Asia last year, down sharply from US$91bn the year before, according to Preqin, a research firm.
So far this year, Asia-focused fundraising has accounted for around 12% of the global total. However, funds currently on the road are seeking nearly US$120bn from investors in Asia, accounting for more than 20% of funds being raised around the world. Asia did not provide much of a buffer during the downturn, but private equity funds clearly see it as an engine of growth for the future.
Conditions remain challenging for private equity firms. For funds that closed in the second quarter of 2010, US$41bn was raised, down from US$92bn in the same quarter last year and US$195bn in the second quarter for 2008, according to Preqin, a research firm. And as this blog has addressed before, the effort required to raise even these more modest sums is rising; the average time it takes to close a fund now stands at nearly 20 months.
A “robust” recovery is underway for private equity in emerging markets, according to an industry group. The Emerging Markets Private Equity Association notes that buyouts in developing markets reached US$13bn in the first half of this year, up from US$8bn at the same time last year. The rise was driven mainly by activity in China, India and Latin America.
Fundraising is also ahead of last year, with some US$11bn raised in the first six months of 2010, a 22% increase on the previous year. Although investments remain modest in relation to other emerging regions, fundraising in sub-Saharan Africa in the first six months of 2010 surpassed the total raised in the whole of 2009.
Even after cutting the size of fund commitments, private equity firms are struggling to meet fundraising targets.
According to research firm Preqin, funds that closed in the first quarter of 2010 took, on average, just over 19 months to raise their desired funds, even longer than last year. At the same time, fundraising targets were slashed by an aggregate US$55bn during the quarter.
The amount ultimately raised in the first quarter, US$50bn, was up modestly on the previous quarter but well down from earlier quarters. The last time private equity firms raised so little over a six-month period was the second half of 2004.
It’s no surprise that private equity firms have had trouble raising money recently.
Preqin, a research company, reckons that global fundraising in the fourth quarter of 2009, at US$35.1bn, was the weakest in six years. The amount raised for the whole of 2009, US$245.6bn, was the lowest since 2004.
These relatively meagre sums were not collected without difficulty. The time that private equity managers left funds open in 2009 was roughly double what it took to close a fund in 2004. Around half of private equity investors polled by Preqin say that they will not make any new commitments until the second half of 2010 or later. These days, convincing cash-strapped investors to devote cash for debt-laden buyouts is a tough sell.