FEDERAL RESERVE BANK OF DALLAS 21 ECONOMIC REVIEW THIRD QUARTER 1998

The private equity market is an important source of funds for start-ups, private middle-market companies, firms in financial distress, and public firms seeking buyout financing.1 Over the past fifteen years, it has been the fastest growing market for corporate finance, far surpassing others such as the public equity and bond markets and the market for private place-ment debt. Today the private equity market is roughly one-quarter the size of both the market for commercial and industrial bank loans and the market for commercial paper in terms of outstandings (Figure 1). In recent years, private equity capital raised by partnerships has matched, and sometimes exceeded, funds raise