2009 saw a drop in investment and investment funding across the board, and private equity was no different. By the end of 2009, private equity fundraising closed only 331 funds totaling $95.8 billion, down 68% from 508 total funds and $299.9 billion in 2008.

Where the Funds Were Invested in 2009

The largest portion of private equity in 2009 was leveraged buyouts and corporate finance funds. In 2009, $53.7 billion, or 56%, of all private equity funding went toward those categories. Still, that is a steep drop of 73% from $195.5 billion in 2008 for the same categories. Mega funds, which are corporate buyout funds of $6 million or more, had a tough year as well. Only $14 billion in mega funds were raised in 2009.

Private Equity Funding Drought

Another category of private equity, distressed funds, saw a roller-coaster drop as well. Only 30 funds for a total of $14.2 billion were raised for distressed investments, a drop of 67% from a record year in 2008.

Mezzanine capital was also down in 2009. Only 20 mezzanine funds were raised for a total of $3.3 billion. Compared to 2008, mezzanine funding saw a $43.1 billion in 24 funds last year - which is a 92% drop from the same period a year ago!

Venture capital funding saw the smallest drop of only 55% in 2009. $13 billion in 120 funds were raised compared to $28.7 in 204 funds in 2008.

The Power of Secondary Investments

However, there was strong performance in 2009 with secondary investments. Secondaries are investments made to existing private equities. 2009 saw an 83% increase from 2008 to $17.5 billion. Interestingly, although there was a sharp increase in the amount of secondaries in 2009, both 2008 and 2009 saw the same number of funds raised with 21 funds. Goldman Sachs was the leader of secondary fund, raising with 31% of the private equity in this category.

Private equity appeared to be sticking to what worked in 2009, with the strongest investments in existing secondary markets and in leveraged buyouts. Although private equity had its worst year in 2009 since 2003, the next decade will likely be defined by the activity appearing in 2010.