What’s happening to all that money?

There have been many accounts recently about the implosion and explosion of the private equity, venture capital and hedge fund markets.

image Given that there are few high-profile hedge funds and private equity funds that have imploded in a big way -including a few of those which were playing in mortgage backed securities.  Many are viewing this as a necessary correction, and just desserts for funds that are not playing by the rules (wasn’t the whole idea behind hedge funds to be "hedged" in down markets?). But there are a large number of hedge funds that have not only survived the downturn of the market in the last quarter, but have generated positive returns.

By and large the amount of capital in the market is growing, but the distribution of the money is the big open question.

Venture capitalists raised 34.7 billion in funds in 2007, the highest amount raised since 2001 which was 38.8 billion according to Thomson financial and the National Venture Capital Association (NVCA).

So is all of that money going?  As of last year, not a whole lot found its way into the pockets of entrepreneurs!

According to the Los Angeles Times, the VC investment into local companies fell to $689 million in the fourth quarter of 2007 compared to the $921 million during the same period in 2006. However the number of deals actually went up indicating that investors might be making smaller bets and waiting for the market to shakeout.

The New York Post (Private Equity Is Exploding) reports that the private equity boom in 2006 - 2007 is continuing through the early part of 2008.  Despite a few spectacular flameouts, PE firms are continuing to raise tens of billions of dollars.  Even with pension funds scaling back their investments, money has continued to flow in from foreign wealth funds.

image For now much of the money in alternative investment funds seems to be sitting in the sidelines waiting out the crazy market dance.

As the gurus of Wall Street would say — "staying in cash is a perfectly acceptable market strategy".  So the current wait-and-see-attitude where funds are not deploying all of their capital, might simply be a legitimate defensive position, and not the doom and gloom scenario that it is  sometimes made out to be.

Private Equity - the year that was

It was a year of huge records for Private equity, that is if you sidestep over the pothole in the road called the credit crunch.

First the great news:

1. Deal volume reached a record $1.5 trillion in mid December of 2007, up from $1.4 trillion in the same time last year.

2. Money raised by Private equity funds was also at an all time high with $199.4 billion raised by the end of the third quarter, up from $154.1 billion raised in that time period in 2006. 3. Good to know that

3. 2007 saw some obscenely huge deals - such as the $38.9 billion dollar acquisition of Equity Office Properties trust by Blackstone.

Then the, well, not so great news:

image Deal volume, in dollars, was down in the second half of the year, although the number of deals did not lose too much ground (graph at left). Deals at below the 1 billion dollar level chugged on through the drought.

True, some funds went under but not too many people were mourning the loss. With the top deals getting overbid a lot, some were looking forward to the possibility of the market finally settling out.

Meanwhile people are bullish on the fact that 2008 will turn around and the PE market will gain back the lost ground. After all, they argue, the private equity firms are still sitting on large piles of cash, and they have to find someplace to put all of the money!

29 queries. 0.434 seconds.