PEI 300: chronicling the industry’s evolution

PEI’s proprietary ranking of the world’s largest private equity firms highlights a number of GPs and niche strategies attracting investor interest despite a general slowdown in fundraising post-financial crisis.

The total amount of funds raised over a five-year period by the largest 300 private equity firms has dropped slightly for the second consecutive year, according to our recently released PEI 300. 

Data from the PEI 300, Private Equity International magazine’s proprietary ranking of private equity direct investment programmes, showed that the world’s largest 300 firms raised a total of $1.302 trillion over a five-year period, down from last year’s total of $1.315 trillion. In 2009, the cumulative total that had been raised over the five year-window staring in January 2004 was $1.337 trillion. 

When examining the top 50 firms on the list, the slowdown becomes slightly more pronounced: the top 50 raised $734 billion between 1 January 2006 and 15 April 2011, representing about a 5 percent decrease for the second straight year.

It shouldn’t come as a shock, given the PEI 300 has tracked firms during the private equity industry’s biggest boom-phase (and many of those mega-funds raised in better days no longer count towards the 2011 PEI 300 totals) as well as the period of instability and uncertainty that followed the global financial crisis. 

That dark period was marked by a dearth of deal activity, widespread fund write-downs and limited partners struggling with liquidity issues, all of which fuelled intense scrutiny as to whether the private equity model still worked. While the industry thankfully turned a corner in 2010, fundraising has remained incredibly tough, with many firms opting to put off new (and smaller) offerings until absolutely necessary. And limited partners, as we’ve reported time and again, continue to exercise great prudence when making commitments, typically writing smaller cheques to fewer managers.

The PEI 300, however, highlights a number of fund managers clearly gaining traction with investors. Energy funds, for example, have enjoyed a lot of popularity over the past few years as LPs search for diversity and hedges against inflation in the post-recession environment. Several energy-focused firms moved up the rankings this year, including EnCap Investments, which rocketed from the 70th spot last year to No. 36 this year. Energy Capital Partners, meanwhile, moved up to 45th from 59th-place last year, while the world’s largest energy-focused firm, First Reserve, is now ranked 9th on the PEI 300, up from its 11th-place spot last year.

Emerging markets-focused firms, meanwhile, continue to make inroads with institutional investors. There are now 10 percent more emerging market firms on the PEI 300 list compared to last year, with MENASA-focused Abraaj Capital, ranked 48th, leading the way. While the number of emerging market private equity firms to make the list from Central and Eastern Europe, Sub-Saharan Africa and MENA remained constant in 2011, Latin America and Asia were the two regions where the number of firms on the PEI 300 increased compared to last year. Newcomers included Sydney-based Quadrant Private Equity, which ranked 226th, and Mumbai-based Everstone Capital, which ranked 280th.

This year, it’s been estimated that around 1,500 funds will launch fund offerings. Many of those funds won’t hit their targets and some will even have to be shelved. But a few will find great success: as the PEI 300 once again demonstrates, fund managers with exceptional track records  and promising strategies will continue to have access to capital.  

A full report on the PEI 300 is in the May issue of Private Equity International. Subscribers may access the article here.