Private equity industry surpasses 2008-2009 performance

Yet PE fundraising remains muted due to record amount of uncalled capital reserves

Washington, DC, February 3, 2011 – The private equity industry continued its strong recovery in the fourth quarter of 2010 with PE activity returning to the level which prevailed just before the global economic collapse in early 2008, according to the year-end Private Equity Index released today by the Private Equity Growth Capital Council.

At year end, the Index stood at 115.3, its highest level since the fourth quarter of 2007. Other key metrics captured by the fourth quarter PEGCC PE Index include:

  • Private equity-based buyout activity for all of 2010 was at $221 billion, the highest since 2008.
  • For the year, there were 96 PE-backed IPOs that raised in excess of $35 billion globally, up from 32 IPOs that raised $12.7 billion globally in 2009.
  • U.S. private equity exits for the year exceeded $110 billion, more than double 2009’s total.
  • Equity contributions to buyouts remained near record highs, with an average gross leverage ratio of 2.41-to-1 in 2010, or a 41% of enterprise value above the 10-year moving average of 35%.

“Investment, deal volume, and exits all increased sharply in 2010 and the Index finished the year well above its 10-year moving average as a result,” said Jason M. Thomas, the Council’s Vice President for Research. “But while investment activity in 2010 reached levels that hadn’t previously been seen since early 2008, fundraising remains the soft spot showing no increase over 2009 and remaining near 2004 levels.” Thomas said fundraising lags primarily due to high levels of uncalled buyout and growth capital funds’ capital reserves. As of January, buyout “dry powder” was estimated to be $446 billion globally.

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 four key factors: total direct investment (including equity contributions to acquisitions and minority stakes, public equity investments, and other corporate financing); buyout transaction volume; fundraising; and the dollar value of private equity exits (portfolio company IPOs or sales to corporations or other investors). The Index measures 100 when all four components are at their ten-year moving average. These four factors were chosen to make up the index because collectively they capture the most fundamental elements of the private equity market.

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

See the slides here.