PE Index: Private Equity Activity Slows in Third Quarter

PE Index registers below 10-year moving average as private equity investment and exits decline during the third quarter.

Washington, DC, November 9, 2011 – Private equity activity experienced a slowdown during the third quarter of 2011, according to the Private Equity Index (PE Index) released today by the Private Equity Growth Capital Council (PEGCC).

As of September 30, 2011, the PE Index registered at 88.6, which is below its 10-year moving average of 100. The PE Index declined almost 17 points, compared to the revised level of the previous quarter. The fall in Index level was primarily driven by a decrease in volume of private equity-backed investment and exits. Some key observations about private equity activity in third quarter of 2011 include:

  • Global private equity investment fell to $58 billion from $67 billion in the previous quarter.
  • Equity contributed by sponsors in leveraged buyout deals increased to 39% from 37%.
  • Commitments to global buyout funds fell slightly to $23 billion from $25 billion.
  • Global callable capital reserves (“dry powder”) for buyout funds declined below 2007 levels, at $385 billion as of October 2011.
  • U.S. private equity exits fell to $21 billion, down over 50% from the previous quarter.

“The drop in the PE Index in the third quarter reflects trends in the larger economy. In particular, lower exit volumes – and especially from IPOs – reflect the volatility and uncertainty in public markets, which impacts valuations of portfolio companies and the exit environment,” said Bronwyn Bailey, PEGCC Vice President of Research. “We expect that with greater certainty in financial markets, private equity activity will rebound,” Bailey concluded.

Designed to provide an accurate snapshot of the state of the private equity market at any given point in time, the PE Index is a composite measure of global private equity activity based on three key factors: the dollar value of total private equity-backed investment, fundraising, and exits (portfolio company IPOs or sales to corporations or other investors). The Index measures 100 when all three components are at their ten-year moving average. These three factors collectively capture the most fundamental elements of the private equity market.

The Private Equity Index is calculated using data provided by Thomson Reuters, Pitchbook and Preqin. The Council updates the PE Index at the end of each quarter.

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