Global private equity investments down 50 per cent in 2009, first half 2010 figures show market stabilising

• $91bn of private equity was invested globally in 2009, down from $181bn in 2008. Funds raised fell by two thirds to $150bn.
• Half year 2010 figures show a slight increase in investments on the same period in 2009.
• Funds raised for secondary market investments reached record levels in 2009.
• Investments and funds raised in the UK fell 63% and 87% respectively in 2009.

Global private equity investments fell by a half in 2009 to $91bn according to the Private Equity 2010 report released today by TheCityUK: the new independent membership body promoting the UK financial and related professional services industry. Buyout activity dropped for the second year running as private equity firms struggled to obtain debt finance to complete deals. Deal making however gathered momentum with larger deals announced in the latter part of the year. Private-equity backed activity generated only 6.3% of global merger & acquisition volume in 2009, the lowest level in more than a decade.

Indicators for the first half of 2010 show that investment activity totalled $55bn, slightly up on the same period in the previous year, with private equity firms focusing on investments in small and medium sized companies. Full year figures for 2010 may show a moderate increase on 2009 if the gradual recovery in investments seen in recent months is sustained. TheCityUK report also states that over the next five years, some $800bn in loans extended on existing private equity investments are due to be refinanced. The high-yield bond market is expected to fill the financing gap left by the decline in leveraged loan issuance.

Global fund-raising fell by two-thirds in 2009 to $150bn, the lowest annual amount raised since 2004. Figures for the first half of 2010 show a total of $70bn raised, slightly below the same period in 2009. The secondary market for private equity, where existing stakes in private equity holdings are bought and sold, has seen a record $17.5bn raised in 2009. Meanwhile, total global private equity funds under management were slightly up on the previous year at $2.5 trillion. The fall in investments and increase in unrealised portfolio positions contributed to a doubling of private equity funds under management in the past five years.

Worldwide investments of UK private equity firms mirrored falls on global markets, declining by 63% in 2009 to £7.5bn, while funds raised fell by 87% to £2.9bn. The UK private equity market, which remains the most developed outside the US, managed 13% of global investments. Start-up and expansion investments by private equity firms in the UK continue to play an important role in financing small and medium sized businesses. More than £1.4bn was invested in 723 UK companies in 2009.

Marko Maslakovic, Senior Manager Economic Research at TheCityUK, said: "Despite the challenges presented by the tough market conditions, London has successfully held its position as the largest European private equity centre, second only to New York globally. This reflects the City's continued attractiveness as a home to a broad range of funds, as well as offering access to a deep pool of private equity expertise."