Historical Trends - Growth and Cyclical Flows

The size and importance of the private equity market has grown over the past 20 years. The market has matured into the capital source of choice for a wide variety of financial transactions, encompassing buyouts (small, medium and large-cap), mezzanine financing, and special situations including distressed debt. Growth in venture capital has also occurred as the depth and quality of deal flow, quality of management and sophistication of exit strategies has continued to develop. The cyclical flow of capital into private equity sectors has also become a prominent characteristic of the asset class. During the 1997-2000 period, the technology sector and venture capital funds were the recipients of record capital flows. The flow of excess capital into the technology sector distorted valuations and return expectations to unrealistic levels. The unsustainable technology market environment lead to a strong counter-cyclical reaction aimed at removing the excesses. This resulted in a major downward price adjustment of portfolio companies. Many companies were written-off and many partnerships raised during that time will fail to return capital. It takes several years in the private equity market to regain focus and discipline and restore normalcy. Since 2001, for the most part, deal flow has grown to match the increased capital available across most sectors of the private equity spectrum from seed stage venture capital to mid-cap buyouts, not only in the U.S. but throughout the world.

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