Private equity real estate fundraising dominated by big-portfolio LP players


real estate2_lrgPrivate equity fundraising for real estate vehicles has become increasingly competitive as several massive LPs still dominate the investment environment, new research shows.

Investors with $1bn or more allocated to real estate represent just nine per cent of LPs in terms of numbers, but account for about 84 per cent of committed capital according to Preqin’s Real Estate Spotlight.

It said that with the majority of capital invested in real estate coming from such a small pool of institutions, private equity real estate fund managers were finding it ever-more difficult to get in front of the right LPs to raise capital.

The report showed that LP appetite for investing in PE real estate funds was significantly higher in investors with more than $1bn already in the asset class, with 29 per cent willing to invest in first-time vehicles.

Comparatively, just 11 per cent of smaller investors said they would commit to debut vehicles.

It said large investors committed an average of $77m to vehicles, while just four per cent of LPs with real estate portfolios below $1bn committed more than $70m to a fund on average.

Larger allocators were also more likely to consider alternatives to blind pool fund commitments such as co-investments, joint ventures and separately-managed accounts.

More than one-third of $1bn-plus investors in real estate made all of their decisions concerning in-house, while only 12 per cent of other investors in real estate do the same.

Preqin head of real assets products Andrew Moylan said, “Though they account for just 9 per cent of institutions investing in real estate, institutional investors allocating $1bn or more to real estate represent the vast majority of total capital allocated to the asset class.

“They are, therefore, vital sources of capital for any fund  manager raising a real estate vehicle in the current fundraising market.

“These larger investors have a greater depth of resources and more diversified real estate portfolios than other smaller investors in the asset class, and are therefore more willing to invest in first-time time fund managers, or to form separate accounts and joint ventures with external real estate managers.

“As such, it is vitally important for fund managers to ensure they are using all avenues available to them to get their funds in front of the key decision makers at these investors.”

Equity investment by closed-end real estate private equity funds in the US was back within a whisker of its 2007 peak last year amid huge opportunity in the country’s recovering property market, previous research from Preqin showed.

A total of $67bn was invested by real estate funds last year, just $1bn shy of the $68bn invested at the industry’s peak six years ago.

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