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Capital Markets

Private equity adapts to the new climate

Private equity businesses have taken a battering from the credit crisis but the industry remains flush with cash commitments from investors and appears to be trying to adapt to a world devoid of easy and cheap financing.

Malcolm Wright, KPMG

"Houses have the luxury of waiting to see where the markets are going"
Malcolm Wright, KPMG

Private equity firms raised $163.5 billion in the first three months of the year, with six leveraged buyout companies raising $82 billion in the quarter, up from $64 billion in the last quarter of 2007, according to Private Equity Intelligence, a research company. However, leveraged buyout firms led only $73 billion of takeovers this year, which is less than a third of the $234 billion of deals announced in the same period in 2007. A stream of bad news has emerged from the private equity industry recently. In March, the manager of the world’s biggest buyout fund, Blackstone Group, announced that it had suffered a 90% drop in profit during the fourth quarter, with economic net income falling from $808 million to $88 million. Its management warned that conditions would remain difficult for the rest of the year or longer. Also in March, Carlyle Capital Corp, a highly leveraged mortgage-backed securities fund listed in Amsterdam by the Carlyle Group, another big private equity player, defaulted.

Malcolm Wright, a partner in the US private equity group of consultants KPMG in New York, says that when it comes to raising money from investors, private equity firms are still benefiting from cash commitments that were made before the liquidity crisis emerged.