Private Equity fundraising increased by 20% in 2012, according to a report from Dow Jones VentureSource. Fundraising for PE firms reached a total of $160.4 billion in 2012. That compares with a total funding of less than $130 billion in 2011. This news shows the continuation of a trend of recapitalization in these funds since the financial crash in 2008.
Private Equity firms take sums of money, usually from institutional investors, and invests it in firms that are not traded publicly. Some of the big private equity firms include, KKR & Co. L.P. (NYSE:KKR), The Blackstone Group L.P. (NYSE:BX), and Bain Capital.
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The Private Equity industry attracts huge amounts of money from a wide range of investors. Back at the industry’s high point before the financial crash, in 2007, Private Equity firms attracted funding of more than $325 billion. This changed in 2009, when the industry’s total fundraising dropped to just over $100 billion, hitting a low of around $90 billion in 2010.
Since then firms in the industry have been making headways in recouping some of that funding. According to peimedia.com, KKR & Co. L.P. has raised $47.7 billion over the last five years, while the Blackstone Group L.P. raised more than $49.6 billion. The top fundraiser in the last five years was TPG Capital L.P., which raised almost $49.9 billion.
Bain Capital, famously founded by failed presidential hopeful Mitt Romney, raised around $20 billion. The figures released today show that the industry is coming back in a big way, though it has by no means fully recovered. There is no telling what the “natural level” of funding should be in the industry.
Way back in 2001, the PE industry raised just $68 billion. The sector boomed during the early part of the decade, and the financial crisis has clearly not damaged its image in the mind of investors. The industry may be changing in itself, however.
According to the latest data, the numbers of new private equity firms actually dropped in 2012. There were 426 private equity firms opened in 2012, a drop of 6% from the year before. There are also changes in the kind of funds that investors put their money into.
The popularity of PE firms that invest in other funds has dropped substantially from the pre-crisis situation. Venture capital funds are enjoying a resurgence after their funding was squeezed in 2009 and 2010, the proportion of money going to venture capital is actually larger than it was in 2008.
PE firms that specialize in corporate finance and leveraged buyouts remain the most important in the industry. The business model commands almost 75% of all capital flowing into private equity funds. These investment vehicles are clearly going to stick around.
2012 was a good year for private equity funds all around, Blackstone Group L.P. (NYSE:BLX) saw its stock price rise by almost 35% last year. The stock price of KKR & Co. L.P. (NYSE:KKR) rose by almost 19%. A large percentage of the growth in the company’s stock prices had to do with the increase in funding.