The private equity arms of investment banks aim to raise $18bn (€14bn) this year as they try to increase their returns from the booming buyout industry. But their combined firepower will be only slightly more than the biggest independent private equity firm Blackstone Group, which last month raised a record $15.6bn fund.

Goldman Sachs will contribute over half of this total. The US bank is expected to launch a $10bn fund after the summer, just over a year after it raised $8.5bn. Bear Stearns Merchant Banking, the private equity affiliate of the bank, held a final close of its third fund at $2.7bn this month. Citigroup is set to close a new $2.5bn private equity fund and Lehman Brothers will close a $1.5bn fund within the next few weeks. Bank of America has become the latest bank to take advantage of the money trying to enter the asset class. It is targeting a fund of $1bn, according to industry sources. Citigroup and Lehman are expected to use their funds to co-invest alongside their private equity clients. Goldman uses its fund to make lead investments but this can lead to accusations of conflicts of interest from lucrative financial sponsor clients. The banks' investment management arms have also been putting money into private equity. Morgan Stanley's Alternative Investment Partners, the funds of funds division of the asset management business, has created a private equity co-investment fund with the Los Angeles County Employees' Retirement Association. The pension fund has committed $250m. Goldman Sachs Asset Management's private equity group and the Canada Pension Plan, in partnership with private equity firm Paul Capital Partners, paid $925m in April for a 14% stake in a global buyout fund owned by JP Morgan. However, this amount is dwarfed by the funds raised by the largest financial sponsors. According to analysis by Financial News, six out of the 10 largest private equity funds have closed this year, raising a combined $79bn, and $60bn has been raised in the past three months by four funds. Besides Blackstone's $15.6bn record fund, Kohlberg Kravis Roberts is to close a $15.5bn fund.