31 August 2011

TheCityUK Private Equity 2011 report

Since 2008 the global private equity sector has seen a significant downturn in activity as a result of the economic slowdown. Now, industry is gradually recovering and remains an important source of funds for startup and young firms, firms in financial distress and those seeking buyout financing.

According to TheCityUK estimates, nearly $180 billion of private equity was invested globally in 2010, up 62 per cent from the previous year but still down 55 per cent on the peak in 2007. Activity in the industry looks set to build on this recovery and top $200 billion in 2011. The average cost of debt financing was still well up on pre-crisis levels, while leverage is down and private equity firms are contributing a bigger proportion of equity into their deals.

Exit activity totalled $232 billion globally in 2010, a three-year high. Activity continued to increase in 2011, to reach an all-time record level of $120 billion in Q2 with fund managers taking advantage of relatively robust financial markets to exit investments made in years preceding the credit crisis. Despite the increase in 2010, leveraged loan issuance for buyouts is still below the levels seen prior to the economic slowdown. The high-yield bond market has filled the financing gap, with amounts issued reaching over $400 billion in 2010, up around a third on previous years’ levels. Over the next five years, over $800 billion in loans on existing private equity deals are due to be repaid or refinanced. There has already been a considerable deferring of debt maturities to 2014 and beyond. The fund raising environment remained depressed for the third year running with around $150 billion in new funds raised in 2010, slightly up on the previous year’s levels. This was around one third of annual funds raised in the years preceding the credit crisis. TheCityUK is forecasting a slight increase in new funds raised in 2011 to around $180 billion as investor sentiment improves. The average time for funds to achieve a final close fell to 15.5 months in the first half of 2011, down from over 20 months in the previous year. The private equity industry has nearly $2.4 trillion in funds under management. Funds available for investments totalled over 40 per cent of overall assets under management or some $1 trillion.

Full report

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