A story in Reuters today raises the possibility that the run-up in private equity activity this year may have some of its traditional investors tapped out.
The massive funds raised by private equity firms and the faster-than-expected speed with which they're spending them are stretching some of their investors thin, causing concern that there won't be enough money to go around in 2007.
The crunch on institutional investors is being fueled by a 32 percent drop in the number of sales by private equity firms, known as exits, in the last two years, while the number of buyouts has skyrocketed.
What is worrying institutional investors is that funds are coming back to them too quickly for money, without a track record from their prior fund.
A drying up of institutional capital would be a major setback to private equity firms raising funds next year and would likely prompt a slowdown in the torrid pace of deals sparked by the sector in the last two years.
Another thing to keep in mind is that the growth of in-house private equity arms within investment banks is probably soaking up capital that might otherwise be available to the independent firms.
Money drying up for some investors in buyout firms [Reuters via Infectious Greed]