Private equity exits are gearing for the second consecutive quarter of slump in the current three-month period ending this month, largely due to the ongoing financial uncertainty and market volatility.

According to research firm Prequin, the PE exit activities — which allow private equity firms to sell off their investments — are likely to decline even further in the fourth quarter of 2011, after a massive decline in the previous quarter.

The PE exits had peaked with more than 300 deals worth $121.8 billion in the second quarter of the year, but more than halved in terms of their aggregate value during the third quarter.

According to Preqin data, 170 exits have been completed so far in the fourth quarter with a total value of $28.4 billion — the lowest quarterly total since the first quarter of 2010.

"The falling number of exits is likely to be reflected in a continued fall in fund-raising, sub-target fund closures and firms abandoning their fund-raising efforts altogether,” said Mr Manuel Carvalho, Manager — Buyout Deals at Prequin.

A continual flow of successful exits is vital for the health of the private equity industry, as it is a key link in the chain of the private equity investment cycle.

A fall in the number and value of exits leads to a fall in fund-raising as investors are less willing — and less able to commit capital.

According to the report, conditions are likely to remain difficult going forward, as sovereign debt crisis impacts the buyout deals and fund-raising market.

“As long as market conditions remain difficult, we will continue to see a stagnant deal and exit market, as volatility in the public equity markets, and a higher cost of capital due to tightening credit conditions, has led to a subdued exit environment for fund managers,” Mr Carvalho added.

With the onset of the credit crunch in 2008 and the corresponding market constriction, the potential for profitable exits diminished rapidly, resulting in a sharp decline in exit activity.

A region-wise analysis, however, shows that the number of exits in Asia continued to rise, despite the falls in North America and Europe, as Asian markets were more resilient and less affected by the overall volatility in 2011.

The aggregate value of exits in North America and Europe followed the same trend from 2006 to 2011, with a rise in the buyout boom years followed by a rapid decline through to first half of 2009.

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