The U.S. private equity industry, by many measures, turned in one of its best years in 2010, despite the overall poor economic conditions and turbulent financial markets. There was a steady increase in PE investment during the year culminating with $50 billion invested during 4Q, 6.25x more than the low of $8 billion invested during 2Q 2009. In total, $132 billion was invested by PE firms in U.S. companies during 2010—the fifth highest one-year total on record. Deal flow was up 11% from 2009 with a total of 1,498 PE deals during 2010. One of the more notable trends that developed during the year was an increase in appetite for larger deals, which was driven by the increased availability of leverage. The 82 U.S. PE deals over $500 million in 2010 was the third highest number on record.

Fundraising remains very difficult for U.S. private equity firms. Only 95 funds reached a final close during 2010 on a total of $84 billion in commitments–the lowest amount since 2003. The capital overhang of approximately $485 billion continues to make fundraising difficult, as does the PE-backed company overhang. PE firms currently own almost 6,000 companies, a third of which have been held for 5 years or longer and need to be exited in order to generate returns for the firms’ limited partners. Fortunately, exits are on the rise thanks to recovering financial markets, strengthening company fundamentals and rising valuations.

The past year presented private equity firms with a number of challenges, but still the industry managed to bounce back surprisingly fast from last year’s lows. Having now turned the corner, look for the positive trends that developed in 2010 around deals and exits to continue in 2011. While a number of challenges do remain such as fundraising and availability of financing, the outlook for 2011 appears to be bright.

Full report embedded below:

PitchBook PE Breakdown 2011

H/T to Street of Walls