US Private Equity Raised Record $302 Billion in 2007
US-based private equity firms raised a record $302 billion in 2007 across 415 funds, the first time yearly fund-raising has exceeded $300 billion. The 2007 record is up 19% from the $254.7 billion raised by 404 funds in 2006, according to data gathered by Dow Jones Private Equity Analyst, which includes buyout funds, venture capital funds, and other types of funds like secondary and mezzanine in its data.
But the total feels almost like it belongs to a previous era, as the environment these firms face as they begin investing their hundreds of billions in capital looks markedly different than it did when they were raising them, Dow Jones Venture Wire reports (subscription required).
“A lot of the 2007 activity had been booked, or at least committed and on its way to closing, in the first three quarters of the year and before the extent of the credit situation had become clear,” said Robert Mast, managing director at placement agent Monument Group.
Things seem to have slowed down a bit in the fourth quarter, but there is still a lot of activity and the fund-raising market continues to percolate.
Venture fund-raising chugged along in the shadow of the buyout industry, as venture firms and their LPs appear to have finally arrived at an uneasy equilibrium more than half a decade after the tech bubble burst, Venture Wire said. Firms raised $32.2 billion across 148 funds, up 19.3% from the 136 firms that raised $27 billion in 2006.
Technology Crossover Ventures contributed 10% of 2007’s total, raising $3 billion for TCV VII LP. Insight Venture Partners pulled in $1.25 billion for its latest fund, while Bessemer Venture Partners, Institutional Venture Partners and ARCH Venture Partners collected a combined $2 billion for their latest offerings.
The record fundraising likely will bring increasing focus on the management fees earned by private equity managers and proposals to increase the taxes they must pay.
Senior officials from the $65bn Oregon Public Employees Retirement System and the $170bn-plus California State Teachers’ Retirement System (Calstrs), told the Financial Times they would oppose any attempt by buy-out funds to increase the percentage of investment profits they withhold from investors in order to compensate for possible higher taxes.
“I think there would be pretty stiff resistance to that kind of a fee. I’m sure one or two buy-out funds might try that, but we’ll walk away”- Ron Schmitz, chief investment officer, Oregon state pension fund.
Private equity executives have floated the idea that if Washington goes ahead with plans to raise the tax on their profit from the current 15% to 35%, they would pass it on to their investors in the form of higher fees.
Investors in private equity funds typically pay a fee of 2% of assets under management and 20% of profits above a predetermined benchmark.
The latter, known as “carried interest” is the main source of compensation for private equity managers and is currently taxed at 15% as capital gains rather than the 35% ordinary income tax rate.
Perhaps looking to have its cake and eat it too, CalPERS, the California Public Employees’ Retirement System acquired a 9.9 % stake in private-equity firm Silver Lake, giving the technology-focused comany money to expand globally and develop new investment funds.
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