The post-golden era

We have just released the 2010 update of the PEI 300, Private Equity International magazine’s annual ranking of the world’s largest 300 private equity firms. You may access the list here.

Topping this year’s list is Goldman Sachs Principal Investment Area, which raised some $54.6 billion in private equity direct investment capital over the past five years. It marks the first time at the top of the list for Goldman, which is followed by The Carlyle Group, Kohlberg Kravis Roberts, TPG and Apollo Global Management. CVC Capital Partners is next, the largest non-US firm in the world.

The total amount raised by these 300 firms over the five-year period is down only slightly from last year’s total. This largely reflects the influence that funds raised during private equity’s “golden era” peaking in 2007 have on the rankings. A huge amount of the capital now under management by private equity firms was raised in the years 2005, 2006 and 2007. The fundraising market started to go wobbly in 2008 and of course after the Fall of 2008 the fundraising market disappeared entirely.

Well, not entirely. The past two years have seen some notable fund closes for a select few firms. In some of these cases, veteran GP groups such as Hellman & Friedman and Clayton Dubilier & Rice managed to secure what must have been the last few dollars in LP commitments for some fairly sizeable funds. In other cases, new firms like Mount Kellett Capital and Pine Brook Road Partners wowed market observers with major debut funds.

David Snow

Then there were the emerging market firms. Fundraising momentum has now put four East Asian GP groups in the top 100, led by Beijing-based CDH Investments. Dubai-based Abraaj Capital becomes the first MENA firm to crack the top 50.

This year, the PEI 300 methodology only counted capital raised after January 1, 2005. Next year, we’ll only look at 2006 and up, and so on. As the years roll forward, the PEI 300 rankings will increasingly be dominated by GPs who won investor support after the market collapse. These will be firms that proved themselves through the Great Recession, that innovated to seize new opportunities in a changed world, that re-invested their fees to build out more robust investment and administrative infrastructure.

This year’s PEI 300 is fascinating, but it is still largely influenced by LP sentiment from the pre-Lehman, “golden” era. Going forward, a very different set of what might be called post golden-era firms will advance through the ranks, and let’s applaud them in advance, because their rise will not be easy.