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Friday Letter The Power of 50

The second annual PEI 50, Private Equity International magazine’s proprietary ranking of the top 50 private equity firms by size, will be online on PEO on Tuesday. Here’s a taste of the data.  

The equity capital accessible by the largest 50 private equity firms in the world has grown by a phenomenal amount since this time last year, when we first published the PEI 50, the world’s only authoritative rankings of private equity funds by size. And if the names are familiar, the rankings have changed considerably as well.

This year’s PEI 50, which will be revealed in detail in the May issue of Private Equity International, shows the private equity capital raised by the largest 50 firms in the past five years has hit $810 billion (€519 billion) – a staggering 47 percent increase over the same survey of the top 50 firms a year ago.

The usual suspects topped the list after another 12 months of eye-popping mega-fund inflation, although the order has changed, due in part to the staggered timing of fundraisings but also to several firms’ aggressive moves into multiple strategies.

A swooning dollar and surging euro have also bolstered the positions of those firms to have raised euro-denominated funds.

New entrants to the PEI 50 include, not surprisingly, firms focussed on energy and turnarounds – strategies that have won increased limited partner allocations in recent years.

The PEI 50 methodology for ranking size is capital raised for private equity direct investment over the past five years. Real estate, hedge funds, debt funds and funds of funds are excluded. Last year’s PEI 50 counted funds raised from 1 January 2002 to press time in mid-April, 2007.

Some market participants wonder whether fundraising can possibly keep pace with last year’s take given the weak leveraged buyout market. Next year’s PEI 50 total will answer this question. While many firms have raised funds of unprecedented size over the past two years, much of this capital has already been spent. The firms with the most dry powder and the fewest current portfolio companies seem best positioned to face the uncertainties of the near future.