Private Equity Backers Tapped Out?

There is a Reuters piece pointing out that some private equity firms are quietly struggling with financial backers who are more  or less tapped out in terms of commitments to the burgeoning asset class. A combination of a 23% dollar reduction in exits, a doubling in buyouts, and a big increase in the number and size of mega-funds has emptied the coffers at some of the private equity industry’s heretofore largest domestic supporters:

So-called buyout firms used to take four to five years to spend
their funds, allowing investors to receive returns gained from the sale
of assets over that time. These institutional investors, known as
limited partners (LPs), had money going out and money coming in. Right
now, the money is mainly going out.

Indeed, so many big funds are spending money so fast that its sucking demand from investors. If private equity firms keep buying into companies at a pace that far exceeds their exits, the LP spigot could go from a steady stream to a slow trickle.

… The Oregon State Treasury, a big investor in some of the largest buyout funds, including Kohlberg Kravis Roberts & Co., Texas Pacific Group Ventures Inc. and Apollo Management, tapped out of its 2006 allocation money in September.

“That’s the first time that’s ever occurred for us,” said Jay Fewel, senior
equities investment officer at the Oregon State Treasury. He added that
he was aware of other institutional investors that used up allocation money as early as May.

Remarkable stuff. Nevertheless, the odds are awfully good that if returns remain intact and traditional supporters disappear there will be oodles of others to take their place, ranging from smaller fry to offshore funds. Either way, it is still interesting watching the first signs of semi-trouble in the PE biz.


  1. Been hearing this from a lot of placement agents for PE firms (and particularly for VC firms). Some LPs were tapped out in Q2.
    What it looks like we’ll see, however, is increased allocations for 2007 — at least if the overall LP class follows the recent public pension lead…

  2. Private equity without discipline is Vegas baby…
    More research = more money. I suspect that is where the shortfall lies and is exactly why a pe bubble is unlikely.

  3. Will see how the PE deliver result next year and if any homerun will come.
    Paul, an interesting piece on WSJ yesterday on China took over as the lead for the IPO, would be interested to get your thoughts on that.