Private Equity Real Estate Fund Raising Hits Historic Low
Wednesday, September 01, 2010

The second quarter of 2010 saw 20 private equity real estate funds raise an aggregate USD7.3bn, the lowest quarterly fundraising total since Q3 2004, according to new research by Preqin.

Preqin spoke to over 160 investors of varying size, type and geographic location about their private real estate portfolios and how they will approach the market in the next 12 months and found that just 24% of investors committed to a private real estate fund in the first half of 2010.

Going forward, 42% of investors plan to commit to a fund in the next 12 months, while 19% would consider doing so. However, 73% of investors surveyed are below their target allocation to real estate.

Preqin found that 43% of active investors are targeting core real estate funds, with 38% interested in opportunistic strategies. Only 28% are interested in value added strategies, a significant decline from previous years.

Emerging markets are attracting increased interest, with 45% of respondents stating an interest in Asia and Rest of World funds, Preqin's survey revealed.

Andrew Moylan, manager of real estate data at Preqin commented:

“The results of this survey make it clear that institutional investor confidence is far from returning to the private real estate market. For some investors, the fact that they have so many unfunded commitments and very limited levels of capital being returned to them in the form of distributions has caused them to halt new investments as they need to do little to maintain current allocations. There are some signs of encouragement, however. 73% of investors are below their target allocations and there is little evidence of target allocations being revised downwards, indicating that over the longer term investors will once again be looking to commit to funds."

"There have been some notable shifts in terms of strategy and regional focus. A significant number of investors are looking towards emerging markets investments, while in terms of strategy core and core plus funds are finding favour with risk-adverse investors. Opportunistic funds are still popular, but value added funds have certainly lost much of their attraction for institutions in the current market.”