Private equity: After the fall
European private-equity firms escaped the full effects of the tech collapse that hit their US peers so hard last year. But they could hardly escape the atmosphere of panic and have trimmed their sails, avoiding riskier start-up-style ventures and giving more attention to buy-outs and blue-chip companies’ disposals of non-core businesses.
Not so long ago, private-equity firms seemed to have the road to riches well mapped out. Funds were returning multiples of money to investors virtually overnight. Every bet on a new technology was a winning one, with returns of up to 78% within six months being touted. Buy-out firms, meanwhile, were acquiring companies, making superficial changes and realizing massive gains by floating or selling them off to a trade buyer a year later.
Encouraged by the phenomenal returns, investors piled in to private equity. During 2000, e48 billion ($41 billion) was raised in Europe according to the European Private Equity&Venture Capital Association (EVCA), a 89% increase on the previous year.
Throughout 1999 and early 2000, funds were being raised in shorter and shorter time frames. Schroder Ventures secured e3.3 billion of commitments in just three months in 1999, for example. What's more, that money was being invested just as quickly. It was almost, recalls one fund-of-funds manager, as if general partners wanted to get their funds spent so they could go out and raise some more before the door closed.
But nothing lasts for ever. As the Nasdaq Composite crashed 40% and the Dow Jones and FTSE 100 began to display startling levels of volatility, the IPO market shuddered to a halt.