Climate - Steep fall in European fundraising puts the pressure on general partners

11 June 2003

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The five-year period between 1998 and 2002 has seen a total of over 590 separate funds launched for investment either partly or wholly in European private equity and venture capital. Combined, these vehicles have sought a total of almost EUR 155bn for investment in the European marke. The same five-year period has seen in excess of EUR 140bn raised for investment in European private equity and venture capital.

Private equity and venture capital fundraising activity in Europe hit its peak in 2000, following three consecutive years of growth in both the levels of capital sought and the numbers of vehicles brought to the market and in the amount of capital secured. This period of growth in fundraising corresponds with a dramatic increase in the level of investment activity in the European market, which also reached a peak in 2000. That year saw in excess of 2,500 separate private equity and venture capital deals completed with a total market value of over EUR 93bn, an increase of some 167% in deal volume and 137% in deal value over that seen in 1998.

In terms of funds closed and new capital raised for investment in European private equity, 1998 saw around EUR 23bn raised, with 80 separate funds holding a close. In 2000, over EUR 40bn was raised for investment in Europe, with 170 funds holding a close. This represents an increase of almost 75% in terms of capital raised and 112% in terms of the number of funds holding a close.

A similar pattern is also seen with regard to the levels of capital being sought for investment in Europe and the number of funds brought to the market. Here significant year-on-year growth was also seen between 1998 and 2000. In 1998, only 79 vehicles were launched, seeking just in excess of a combined EUR 15bn for investment in European private equity and venture capital. In 2000, 165 new funds targeting investment opportunities amongst European unquoted companies either in whole or in part were launched. Combined, these vehicles were seeking almost EUR 59bn for investment in Europe. This represents an increase of over 290% in terms of capital being sought and almost 110% in terms of the number of funds launched.

It should be noted, however, that the level of capital being sought by those private equity and venture capital funds launched in 2000 was boosted to a significant degree by the launch of a number of large, global buyout funds managed by US groups. In particular, 2000 saw the launch of DLJ Merchant Banking Partners III (initial target $5.4bn), GS Capital Partners 2000 (launched with a target in excess of $5bn) and JP Morgan Partners' JP Morgan Partners Global Investors Fund, which was launched with an initial target of some $13bn, the largest amount ever sought by a private equity fund. Although only around 20% of the capital being sought by these funds was targeted at investment opportunities in Europe, this still represents a significant amount, with the three funds mentioned above seeking an estimated EUR 6.2bn for investment in Europe between them, some 10% of the total sought by all the vehicles launched in 2000.

Since reaching this high-water mark in 2000, European private equity and venture capital fundraising activity has declined somewhat. 135 new private equity and venture capital funds were launched in 2001; combined, these funds were seeking almost EUR 28bn for investment in European unquoted companies. This represents a fall of 18% in the number of new funds launched and over 50% in the combined level of capital being sought compared to that seen in 2000, as market activity fell back to levels seen in 1999. The reduction seen in both the number of funds brought to the market and the total amount of capital being sought by those vehicles illustrates how 2001 was beginning to see the fundraising market slow down, as increasingly tougher market conditions prevailed. Nonetheless, despite this tougher fundraising environment and the wider downturn in the European private equity and venture capital markets, the amount of capital secured by private equity and venture capital funds in 2001 remained high, with activity levels well above those recorded in 1999. Although there were falls in both the amount of capital secured for investment in Europe and in the number of funds holding a close over levels seen the previous year, these falls were relatively minor. Almost EUR 38bn was raised for investment in European unquoted companies in 2001, with 163 separate funds holding a close. This represented a fall of only 8% on the amount of capital secured the previous year and a mere 4% on the number of funds holding a close.

A substantial fall in activity levels has been seen across the board in 2002 with regard to fundraising. Both the number of new funds launched and the capital being sought for investment in Europe by those vehicles have fallen substantially on that seen in 2001, with only 83 new funds brought to market seeking some EUR 22bn for investment in Europe. This is a fall of almost 40% in the number of new funds launched and of 20% in the levels of capital being sought. However, it is worth bearing in mind that, given the extremely tough fundraising environment that has prevailed throughout 2002, many GPs that are out on the fundraising trail are choosing not to publicise their fund launches. Indeed, many are waiting until they have held a first, or even a final, close before going public. It is likely, therefore, that the true number of funds launched in 2002 (and thereby the true level of capital being sought for investment in Europe) is somewhat higher than the available data would suggest.

A similar picture is seen with regard to the amount of capital raised in 2002. The previous year saw a substantial amount of capital secured for investment in Europe by private equity and venture capital funds, despite the downturn in investment activity, a worsening global economic climate and a tough fundraising environment. This was not the case in 2002, however, and the year saw a significant reduction in both the level of capital secured by the market and the number of funds successfully holding a close in the year. Only 97 separate funds held a close in 2002, together raising close to EUR 24bn. This represents a 37% fall on the amount of capital raised in 2001 and a 42% fall on that secured in 2000.

As already mentioned above, 2002 has seen private equity fundraising in Europe affected by the downturn, with the market recording a substantial fall in activity levels across the board on those seen in previous years. The fundraising environment that has prevailed during 2001 and 2002 has been an extremely tough one and is a far cry from the heady days of 1999 and 2000. Many practitioners expect there to be little change in 2003, with a substantial improvement in the climate unlikely to materialise until 2004. Nonetheless, the overall picture is far from one of unmitigated gloom and there is some evidence to support the view that private equity fundraising, at least in certain segments of the market, continues to some extent to defy overall market conditions.

However, it is undeniable that private equity fundraising activity in Europe fell substantially in 2002. Only 83 new funds were reported to have been launched in 2002; combined, these vehicles were seeking some EUR 22bn for investment in Europe. This is a fall of almost 40% in the number of new funds launched and of 20% in the levels of capital being sought over that seen in 200. Furthermore, it is substantially lower than activity levels recorded in 1999 and only slightly above those recorded in 1998.

The downturn also extended to the amount of capital secured and the number of funds holding a close. Unlike the position in 2001, which saw a substantial level of capital raised for investment in European private equity and venture capital despite the prevailing market conditions, 2002 has seen a significant reduction in both the amount of capital raised and the number of funds successfully holding a close. Only 97 separate funds held a close in 2002, together raising close to EUR 24bn. This represents a 37% fall on the amount of capital raised in 2001 and a 42% fall on that secured in 2000.

This is an excerpt from the European Fundraising Review 2003 produced by Initiative Europe in associatian with Campbell Lutyens & Co. Ltd. The review provides an annual overview of venture capital and private equity fundraising activity in Europe. It gives an insight in general trends, regional differences and institutional appetite as well as sought capital and actually raised capital. All statistics are produced on the basis of validated data collected by Initiative Europe. If you wish to learn more about this report or the other industry sectors covered please contact:

Nicholas Gordon, senior research analyst, Email: nicholas.gordon@initiative-europe.com. Tel: +44 1737 784 204.