Private equity fundraising ebbs amid credit crunch

LONDON (Reuters) - Private equity firms are likely to struggle to raise as much money as planned in the coming months, new research released on Friday shows, as the credit crunch brought third quarter fundraising to a two-year low.

A total of 136 funds achieved a final close of $91 billion (44 billion pounds) from July to September, nearly a 40 percent decline from the year-ago period and about half the record $177 billion raised in the second quarter, research firm Private Equity Intelligence (Preqin) found.

About one-third of the amount raised in the third quarter was for buyouts, which experienced the biggest drop in capital commitments. One-fifth was for real estate funds and another one-fifth for venture funds.

Preqin said the effects of the credit crunch on future fundraising were not entirely clear, but it noted that 1,196 funds are seeking $619 billion amid the difficult climate.

"With so many managers on the road all trying to gather commitments for their funds, it is likely that managers will find it increasingly challenging to reach their fundraising targets," Preqin said.

Kohlberg Kravis Roberts & Co, Apollo Investment and Carlyle Group are all out trying to raise buyout funds of at least $15 billion, while Apax Partners and Bain Capital are seeking $10 billion each, according to Preqin.

Investors, including pension funds and university endowments, still have a healthy appetite for private equity, with most looking to boost their allocations to the asset class. But the record number of options is making it harder for private equity to secure money.

"With the butter already being spread thinly, firms have already had to change their original plans for fundraising to adapt to the current market conditions," Preqin said.

It added that if credit markets improve, there could be a "mini-boom" in fundraising, with many of the funds on the road able to reach their targets and close quickly.

"There are clearly too many funds on the road, and a mini-boom in the number of funds closing could help to bring this number down to a more manageable level where the supply and demand levels become more balanced," Preqin said.