Private Equity Is Suffering From a Lasting Hangover

Download 2010-3-23 Private Equity's Lasting Hangover –

U.S. leveraged-buyout volume dropped from almost $200 billion in the second quarter of 2007 to just $5 billion two years later, according to Dealogic. On the flip side, opportunities to realize profits, chiefly by a sale of a company, have fallen dramatically.

Buyout funds called up an annual average of $119 billion from investors from 2004 to 2007, but paid back $131 billion a year from earlier investments, according to Preqin, a London-based research firm. In 2008 and 2009, call-ups fell slightly to $112 billion a year, but distributions collapsed to $44 billion.

This makes tapping investors for future funds awkward. Cash locked up in existing investments reduces the scope to entrust more money to buyout funds—especially as the latter are sitting on half a trillion dollars of uncalled capital commitments, according to Preqin.

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