A hard act to follow

While the recent closings of three buyout funds at around $14 billion each may seem to contradict the notion that the era of the mega-fund is over, managers raising funds in 2009 may well be disappointed if they think such numbers can be replicated.

The good news began on the last day of 2008 when Washington-based Carlyle Group closed its fifth buyout fund on $13.7 billion. London-based CVC Capital Partners followed in January with the announcement that its European Equity Partners V fund raised $14.4 billion, while New York's Apollo Global Management (Apollo) scored the largest total of all with $14.9 billion for Apollo Investment Fund VII.

While such numbers look impressive, especially in the current market, they come with a few caveats. For one, both Carlyle and Apollo started fundraising in 2007 before markets collapsed last autumn, and while CVC began in 2008, fundraising numbers in Europe were bolstered by the weaker dollar. At the same time, all three funds fell short of their initial targets of over $15 billion.

“I would not attach a lot of significance to the fact that these funds have all closed recently, because it doesn't reflect the reality that it's a very tough fundraising market,” says Steve Moseley, president of California-based private equity adviser StepStone Group. “Well-known franchises with strong LP relationships and significant momentum prior to the meltdown are still able to raise the money, but others will have to work a lot harder to get smaller numbers.”

With that inmind GPsmay have to reduce targets fromprevious fund sizes or else plan for a long road trip.“I think that small will be increasingly beautiful for groups and I suspect this will be a quasi-permanent change,” says Josh Lerner, professor of investment banking at the Harvard Business School.

New York buyout firm Kohlberg Kravis Roberts is currently seeking up to $10 billion for its new fund, half the total of its previous one, while alternative assets giant The Blackstone Group told investors that a $20 billion target for Blackstone Capital Partners VI is unrealistic according to media reports.