PE Real Estate Fundraising Plummets
Friday, July 23, 2010

The USD7.3bn raised by 20 private equity real estate funds in Q2 2010 is the lowest amount of capital raised by the industry since Q3 2004, when 30 funds raised an aggregate USD6.1bn.

According to alternative asset research firm Preqin, the fundraising environment remains "extremely competitive" and it is clear that the recovery many predicted is yet to occur. The aggregate target of private equity real estate funds in market has fallen significantly from USD228m in Q1 2009 to USD134m in Q3 2010. Many fund managers have reduced their fundraising targets, while others have been forced to abandon their efforts altogether.

The time it is taking fund managers to close funds reflects the competitiveness within the fundraising market, Preqin notes. Funds which have closed in 2010 spent an average of 19.7 months in market. In comparison funds which closed in 2006 spent, on average, less than 10 months in market.

“The low fundraising total for Q2 2010 confirms that private equity real estate fundraising remains extremely competitive, with fund managers taking over a year and a half to close their funds. While the aggregate target of funds in market has fallen, there is still a large number of funds on the road seeking commitments from an investor community which remains far less active than it was a few years ago," commented Andrew Moylan, Manager - Real Estate Data at Preqin.

"Preqin has found that most institutions do plan to increase their activity in the second half of 2010, but many have significant amounts of capital committed to existing funds and are receiving very few distributions to re-invest. With real estate transactions increasing, more investors will receive distributions, which will in turn lead to increased activity in the fundraising market. This will take time however, and it seems likely that there will be several more quarters of slow fundraising to come," he added.