LONDON AXA Private Equity has raised a larger than expected $8 billion from investors, much of which it will use to take assets off the hands of banks cutting down their exposure in the face of rampant regulation.
Banks, in dire need to fortify their capital buffers, are in a rush to offload private equity assets they spent billions on in the heady days before the financial crisis, causing a flurry in so-called secondary sales.
"AXA Private Equity predicts a significant increase in activity in the secondary market over the next two years," the investment arm of French insurance group Axa (AXAF.PA), said in a statement on Monday.
The firm expects between $40 billion and $50 billion of bank assets to come up as a result.
Axa Private Equity had initially been after some $3.5 billion for its flagship secondaries fund but ended up raising more than double that amount at $7.1 billion. An additional $900 million will go towards its primary fund of funds, the group said.
Traditionally, private equity houses buy companies with large amounts of debt financing. They then aggressively cut costs, improve performance, and sell it on for a profit, usually through a stock market flotation.
If they find no outside buyers, they often flip assets between rivals. The model for AXA Private Equity's secondaries fund is slightly different in that it takes investment portfolios off the hands of banks.
Last year, it bought a $740 million portfolio of private equity holdings from Barclays (BARC.L) and earlier acquired a bumper $1.7 billion portfolio from Citigroup (C.N).
Its fundraising success follows U.S. Group Lexington Capital, which last year raised $7 billion, then the largest ever fund raised by a secondaries specialist. Rival Coller Capital is seeking to raise some $5 billion.
BIG DEALS VANISH
Deal-making in the private equity industry - once home to conspicuous multi-billion deals such as KKR's 11 billion pound ($17 billion) acquisition of Alliance Boots and Terra Firma's 4 billion pound purchase of EMI - has been tepid ever since the onset of the financial crisis.
In the absence of finding new deals, as bank lending for the debt-heavy leveraged buy-outs has dried up, many firms have spent more of their time buying mid-sized companies from rivals. May saw a flurry of such deals.
Silver Lake SILAK.UL and Partners Group (PGHN.S) bought Swiss tax-free shopping business Global Blue from rival Equistone, while two private equity groups are in the hunt for Europe's biggest frozen food company Iglo Group, now owned by buy-out firm Permira PERM.UL.
The former head of Britain's biggest mobile phone company Everything Everywhere approached private equity groups six months ago about an 8 billion pound buyout, but found no takers, sources said this weekend.
Not only have buy-out firms lost their access to funding, it is also harder for them to sell companies to stock markets, which are virtually shut for new entrants because of the weak global economy and the euro zone debt crisis.
The owners of German chemical company Evonik, for instance, are set to scrap plans for what could have been Europe's biggest initial public offering in more than a year, people familiar with the matter told Reuters on Sunday [ID:nL5E8HH46R]
($1 = 0.6393 British pounds)
(Editing by Hans-Juergen Peters)