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Investors put the brakes on fundraising

EVCA says the drop in distributions to investors has hit fundraising, but delegates at its annual symposium in Madrid today insisted the industry is not in crisis despite the global credit turmoil.

European private equity firms' fundraising has fallen by almost a third in 2007 from the record levels of the previous year. According to the latest numbers from EVCA, the pan-European trade association, fundraising hit €79 billion in 2007, compared with €112 billion two years ago.

“There is no real crisis in private equity. The deal slowdown is due to the withdrawal of the mega funds.

Herman Daems, GIMV

Of the total, €60 billion was allocated to buyouts and €10.4 billion to venture and growth capital, with similar weights in the total amounts raised as in 2006.

The decline in funds raised underlines the impact of the liquidity crisis in global credit markets, which has slowed distributions from firms to their investors.

In 2007 the total amount divested at cost reached €27.1 billion, 18.3 percent less than in 2006, the first fall in the money European private equity groups have returned to their investors since 2002. The total number of companies exited dropped by 38.7 percent to 2,726.

However, at EVCA's annual symposium in Madrid, Herman Daems, chairman of GIMV, a Benelux investment firm, said: “There is no real crisis in private equity. The deal slowdown is due to the withdrawal of the mega funds.”

Investments by European private equity firms increased to €73.8 billion, up from €71.2 billion in 2006. Buyouts rose substantially, from €50.3 billion to €58.3 billion, while venture investments dropped from €17.3 billion to €12 billion. On the buyout side, the numbers reflected a strong first half of the year, with some larger deals in the pipeline that were completed in the second half of the year.

Urs Wietlisbach, co-founder of Partners Group, said: “Large-cap funds are struggling to find financing. In the mid cap it is almost business as usual. The liquidity in the debt market was not a problem for private equity. They are capitalists and took what they could get. Private equity adapts afterwards.”

In 2007, approximately 5,200 European companies received investments. About 85 percent took place in companies of fewer than 500 employees. UK companies received 29 percent of the total amount invested in European companies, followed by France at 16.4 percent and Germany at 14.7 percent.