private equity

Preqin, a private equity intelligence firm says that the private equity industry has approximately $3 trillion total assets under management (AUM), as of December 2011. A study conducted by the firm revealed the private equity industry grew significantly since the “buyout boom” period from 2004 to 2007.

According to the study, the AUM’s of mega-sized funds experienced the fastest and largest growth rate at 136 percent due tendencies of making large transactions. Private equity fund managers remained resilient, despite the financial crisis in 2008. Data compiled by Preqin revealed buyout funds still hold 72 percent shares in the companies purchased from 2006 to 2007.

Generally, Buyout general partners (GPs) hold their shares in companies between 3-5 years, to add value and generate profit out of their investments. The study found that majority of investors hold on to their portfolio longer than expected. Buyout fund managers sell or close their holdings during favorable market conditions. The report said the equity industry recorded $130 billion exits during the second quarter of 2011.

Manuel Carvalho, manager of private equity deals, said many buyout fund managers were extremely active during the boom era. According to him, majority of fund managers kept their portfolio longer than intended because of poor market conditions. He said, “Investors in funds in this era can be reassured by the fact that GPs are making the most of any exit opportunities provided to them such as in Q2 2011 when $130 billion of exits were made. LPs will begin to see further distributions as soon as conditions are favorable enough for GPs to sell at a right price.”

The Preqin study the top five consistent performing buyout fund managers include:

  • Altor Equity Partners AB, which invests in medium-sized companies in the Nordik region engaged in pharmaceuticals, food service, apparel, oil service, telecommunications, and storage solutions industries
  • Lovell Minnick Partners, the firm is based in the United Stated with specialties in middle market buyouts, divestitures, growth capital, expansion capital, and minority investments in the financial services sector
  • Sothern Cross Group, the company is based in Argentina primarily invests in energy, food distribution, pharmaceuticals, technology, etc, with $50 million-$500 million market value
  • FIMI, is a mezannine buyout fund based in Israel
  • Waterland, a private equity firm based in Netherlands specializing in consolidation strategies

According to Preqin, China is an attractive destination for the private equity industry, as the Chinese government opens its doors for more private investments, easing government regulations. The Finnish State Pension Fund and Sony Life Insurance are looking at China as a good investment destination.

Twenty four percent (24%) of investors are unwilling to invest in Europe this time, while 72 % are enthusiastic to invest in emerging markets.