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Yippee! Private Equity Funding Is Drying Up

From CNN’s Money.Com:

The shrinking private equity world

Maureen Farrell
January 24, 2012: 3:41 PM ET

NEW YORK (CNNMoney) — The notoriously private private equity industry can’t escape the glare of the spotlight these days, but the more immediate issue facing the industry is a lack of funding.

Private equity funding is drying up as investors have been seeing lackluster returns. And the trend looks likely to continue.

Obama-nomics is working. Actually, we should probably say ‘Democrat economics.’ Look at the chart and bear in mind that the Democrats took control of Congress in January 2007.

In 2011, U.S. firms invested just $32.1 billion in private equity, down nearly 79% from the industry’s peak year in 2007.

And 2012 is expected to be even worse.

"It’s taking a lot longer to raise funds," said Jeffrey Bunder, head of Ernst & Young’s global private equity practice. "The process isn’t like it used to be. They’re having to demonstrate why they deserve the money."

One solution might be to increase regulations and raise the tax on capital gains. We might also try taxing ‘millionaires’ more, too.

Pensions and endowments, which make up the bulk of private equity investors, have been casting a wary eye on the industry because of the combination of high fees, lackluster returns and generally erratic returns.

Keith Garrison, the director of alternative assets for Texas Christian University’s $1.1 billion endowment, said he’s been more cautious about investing in buyout funds since the financial crisis.

"The returns have been more drawn out than you would have originally anticipated," said Garrison. "We need to manage liquidity. I’m not the only endowment closely watching its allocation to private equity."

Which means more businesses that are in trouble will just go belly up. There won’t be anymore Bain Capitals to rescue them.

Thank goodness!

In fact, current returns are at their worst level since at least 1990, when the California Public Employees’ Retirement System first started tracking the data.

Private equity funds raised in 2006 have returned just 4.2% to investors, according to the pension fund’s website. Funds raised in prior years generated double digit returns

Meanwhile, the same firms are struggling to find companies to take private that could generate returns. The industry is sitting on roughly $400 billion of cash globally. Private equity managers haven’t found the right companies to put this so-called dry powder in.

All but the best performing firms are expected to shrink, as investors put a smaller amount of their portfolio into private equity firms.

Firms that have raised between $1 billion and $5 billion with so-so performance will have the most trouble raising new funds

Well, to paraphrase Humphrey Bogart in Casablanca, ‘we will always have fairness.’

This article was posted by Steve Gilbert on Wednesday, January 25th, 2012. Comments are currently closed.

3 Responses to “Yippee! Private Equity Funding Is Drying Up”

  1. P. Aaron

    Money Never Lies.

  2. Petronius

    The plan is working.

    His policies are having the desired effects.

    Chalk up another win for the Liberal Death Wish.

  3. proreason

    This is interesting. I’d like to see the numbers from the mid-70′s forward. I’ll bet that they began to climb about 1981 and were really soaring in the mid-90′s.

    My other hunch is that the steep decline isn’t due as much to poor results as it is due to people with money recognizing that we live in a fascist country. The stock market has done pretty well since the second quarter of 2009, but Private Equity has crashed. Private Equity is hated by the marxists. It’s the “private” part that they don’t like, just like they hate small businesses (not the kind that are listed onstock exchanged; small businesses held by private owners). Public companies are just fine with the fascists, the bigger the better. The bigger they are, the easier they are to control (i.e., GE, GM, MSFT). Ergo, investors with big money got the message in 2009 they would get decent returns in the Stock Market but not in the private markets. They have been rewarded for their boot licking by annual returns of about 20% since obamy has held the whip.

    For example, take a look at GE’s stock graph. It fell from nearly 60 in mid 2000 to 40 in mid 2007, while the Dow went up about 10%. But since the trough in early 2009, GE has doubled, while the Dow has increased 70%. For some reason, at the exact time obamy got annointed, GE’s fortunes improved. They must have become smarter all of a sudden.




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