Significant decline in US fundraising for 2001 from 2000 highs

The appetite for increased investor commitments has been 'sated' according to the latest figures, as GPs use fund reserves and LPs are unable to use distributions to re-invest.

A total of $97.7bn was raised across all asset classes of private equity in the US for 2001, just over half the record $192bn raised a year earlier, according to research compiled by Venture Economics and the National Venture Capital Association (NVCA).

Broken down by asset class, $40.5bn of the $97.7bn was raised for 102 buyout and mezzanine funds, the lowest level of capital raised since 1996, and a sharp drop against the $79.8bn raised in 2000. The fall in fundraising for venture capital also dropped sharply compared to a year earlier – $40.6bn was raised for 286 funds for 2001 compared to $104.6bn for 605 funds in 2000. However, the $40.6bn still represents the third largest year on record though.

The research also indicates that the venture capital fundraising slowed down dramatically during the last quarter of 2001, securing just $4.6bn of the $40.6bn.

According to the NVCA and Venture Economics, this slowdown reflects strong reserves resulting from increased fundraising levels in 2000 and early 2001. Jesse Reyes, vice president of Venture Economics, says the private equity industry as a whole has approximately $100 billion of uninvested capital, so it is not surprising that the appetite for increased LP commitments in this asset class has been 'sated'.

He went on to say: 'The absence of an exit market also means that distributions back to LPs has slowed. LPs were able to finance a good portion of their additional commitments through the distributions from prior investments, thus creating a ‘self funded’ commitment market. We expect that until the excess capital is drawn down and distributions pick up, it will be difficult to increase commitments much above last year’s levels.'