Fundraising fell by a third in 2007, according to preliminary figures, which showed a dramatic decline to €74.3 billion from 2006’s record €112 billion peak. The 2006 numbers were boosted by a rash of European mega-funds closing that year. Fundraising in 2007 was ahead of 2005's total of €71.8 billion.
The level of investment in 2007 by contrast held firm and could even exceed the €71 billion of 2006. EVCA, which released the data at its investor meeting in Geneva, said it was likely that final figures for 2007 may be revised upwards from the current €68.3 billion.
Funds raised during the first and the second halves of 2007 were nearly equivalent at 50.7 percent and 49.3 percent respectively, suggesting the credit crunch had a limited impact.
In addition, the fundraising cycle does not seem to have been affected through 2007 by the amounts of capital already raised, as in previous cycles.
The figures, compiled by PEREP_Analytics, a new and independent data-gathering body endorsed by 14 national associations and EVCA, showed a concentration of funds at the upper end of the market. More than one half of capital raised in 2007 was concentrated in 13 funds that closed above €1 billion.
Last year saw pension funds continuing to be the largest source of funding for the industry, providing a total of 25.3 percent of capital, slightly down from 27.1 percent in 2006. The preliminary PEREP figures show, for the first time, investments by endowments and foundations, family offices and other asset managers. Together, some €6.2 billion in funds was raised from these sources in 2007.
Approximately 120 independent funds reached a final closing in 2007, with an average fund size of €560 million. However, when the cumulative amount raised by the funds with a final closing above €1 billion in 2007 is taken out, the average fund size for the year reduces by more than half to €246million.
Buyouts continued to account for the majority of investments by amounts invested at 77.4 percent. This figure, though, stands at 27.9 percent when looked at by actual number of investments. Expansion financing accounted for 12.9 percent of the amounts invested, but represents 35.6 percent of all investments. Early stage investments showed similar patterns, making up only 4.1 percent of the amounts invested, but accounting for 34.6 percent of all investments.
Of the buyouts, over 66.5 percent by number of investments were deals of less than €15m of equity, with only 1.7 percent of financings in excess of €300 millio per fund. This underlines the fact that the European private equity market is driven by mid-market buyout deals by amount and expansion deals by number.
The European private equity industry’s preliminary performance figures for 2007 show stable performance. The Thomson Financial Performance Benchmarks, compiled by Thomson Financial in collaboration with EVCA, show that the private equity industry has returned 11.7 percent, net of management fees and carried interest, with buyouts and venture capital returning 16.1 percent and 4.5 percent respectively.
These returns were on a pooled average basis. Best performers were the buyout funds with above median returns, with slight variations in returns per fund sizes: 17.4 percent for $250 million to $500 million range; 21.9 percent for $500 million to $1,000 million range, and 15.6 percent for buyout funds of more than $1 billion.
Top quarter funds produced excellent pooled IRRs across venture capital at 15 percent and buyout at 33.4 percent, with all top quarter private equity funds achieving 23.5 percent.
The preliminary 10-year investment horizon return moved from 12.8 percent in 2006 to 11.5 percent in 2007 for all private equity funds. Both buyout and venture funds registered positive 10-year returns of 16.6 percent and 1.8 percent respectively.
Final numbers will be produced in June.