Despite conditions in the credit markets, 2007 saw an increase in the total number of private equity funds raised, the size of those funds, and the number of first time funds raised, according to SCM Strategic Capital Management's annual terms and conditions study. The Swiss financial consulting firm surveyed 311 new funds and found that 91 percent of all follow-on funds raised last year were bigger than their predecessors; 21 percent of funds screened had a target size of more than $1 billion; and 31 percent of funds screened were first time funds.
The study also noted a trend toward longer investment periods for private equity funds as well as an increase in GP commitments to funds, which SCM chief executive Stefan Hepp attributed to GP wariness.
?Longer investment periods give GPs more leeway with regard to sitting out the bottom of a cycle before they make investments,? he says.
Deal-by-deal carry fees in European funds ? which typically distribute all paid-in capital before taking carry ? rose from 9 percent of funds raised in 2006 to 18 percent in 2007. Hepp said the change in terms is most common among larger funds with international ambitions who feel the need stay competitive with their US peers.
Hepp cautioned, however, that the frenetic pace of fundraising is likely to slow in 2008.
?It's going to take firms a little bit longer to raise their funds? as investors may want to wait a bit and see how their existing portfolios are developing before they make additional commitments,? Hepp says. ?I also think that given the general higher level of nervousness in the market, investors may be more skeptical about new or untested teams, resulting in a smaller number of first time funds coming to the market.?