Where has all the private equity gone?

by Ryan Caione, July 11th, 2008, 7:00 am

According to a report issued this week by Dow Jones, private equity firms raised more than $130 billion in the first half of the year, only 3% less than the same time last year, when the private equity boom was waning. Warburg Pincus closed the largest private equity fund so far in 2008, worth some $15 billion, while GS Capital Partners raised a record $20 billion for its latest mezzanine fund. Venture capital funds have also seen an uptick in their inflows, led by firms like Kleiner Perkins Caufield & Byers and Lightspeed Venture Partners. Real estate-focused private equity investors are enjoying record fundraising as well.

At the same time, with the credit market dried up, the biggest of the private equity firms, such as Carlyle Group and Madison Dearborn Partners, have had difficulties raising funds for leveraged buyouts and, for the most part, have been sitting on their hands (unless they’re ganging up to buy The Weather Channel). There were no venture capital-led IPOs during the second quarter. Even Warren Buffet’s Berkshire Hathaway, which revealed in its latest annual report that it has up to $20 billion burning a hole in its vault, has only made one major deal on its own (its acquisition of Marmon Group) in the last year-and-a-half or so.

So where is all the private equity and venture capital moolah going? Smaller private equity firms such as Kohlberg & Co. (which announced its acquisition of PPG Auto Glass this week) and Stone Point Capital (investors in 51% of Fiserv Insurance) are still relatively active. With the stock market in bear territory there are bargains to be had, but the same environment makes PE and VC investors wary of commitment. They have amassed their war chest. It’s only a matter of time before they start deploying it.