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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.

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