Global private equity investments up 62% in 2010 - further increase seen in 2011 as investor sentiment improves

Nearly $180bn of private equity was invested globally in 2010, up 62% from the previous year but still down 55% on the peak in 2007.

Activity in the sector looks set to build on this recovery and top $200bn in 2011 as investor sentiment continues to improve according to the Private Equity 2011 report released today by TheCityUK.

Over the next five years, some $800bn in loans extended on existing private equity investments are due to be repaid or refinanced. There has already been a considerable deferring of debt maturities to 2014 and beyond, with the high-yield bond market filling the financing gap left by the decline in leveraged loan issuance. Private equity firms are also contributing a bigger proportion of equity into their deals.

Exit activity totalled $232bn globally in 2010, a three year high. It continued to increase in 2011, to reach an all-time quarterly record of $120bn in Q2 as fund managers took advantage of relatively robust financial markets to exit investments made in years preceding the credit crisis.

The fund raising environment remained depressed for the third year running with some $150bn in new funds raised in 2010, slightly up on the total raised in the previous year, but around one-third of annual funds raised in the years preceding the credit crisis. TheCityUK expects an increase in new funds raised in 2011 to around $180bn. The private equity sector has nearly $2.4 trillion in funds under management. Funds available for investments amount to around 40% of this or some $1 trillion, largely a result of an accumulation of funds by private equity firms which were not deployed due to the economic slowdown. It could take another three years to invest the current volume of uninvested capital targeted for buyouts.

Investments of UK private equity firms mirrored the recovery on global markets, increasing by 61% in 2010 to £20.5bn, while funds raised more than doubled to £6.6bn. The regional breakdown shows that London’s share of UK investments increased from 35% to 42%. Other regions benefitting from an increase in share included the South West, West Midlands, Yorkshire and The Humber, North West, North Ireland and the North East. The sector breakdown reveals greater investment in consumer services whose share in 2010 rose to 30% from 16%, and health care which more than doubled to 14%.

Marko Maslakovic, Senior Manager Economic Research at TheCityUK, said: “The UK private equity market remains the most developed outside the US, managing 17% of global investments and 7% of funds raised in 2010. This reflects the UK’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. Venture capital investments by private equity firms in the UK continue to play an important role in financing small businesses. More than £500 million was invested by UK based firms in 479 UK and overseas companies in 2010.”