Private Equity RE: Strong Fundraising, Fewer Funds

BY PAUL BUBNY

NEW YORK CITY—2016 marked the fourth consecutive year of annual declines in fund closures across the globe, according to Preqin.

Preqin’s US headquarters at One Grand Central Place in Midtown Manhattan. (Photo courtesy of Goldman Copeland)

NEW YORK CITY—Preqin said Thursday that the closed-end real estate fundraising market recorded another strong year in 2016, as 214 funds closed globally raising an aggregate $104 billion. The tally represents the fourth consecutive year in which fundraising for the asset class has exceeded $100 billion globally.

Since Preqin expects these figures to rise by as much as 10% as more information becomes available, the year just past could approach the post-recession record of $123 billion raised by funds closed in 2015. However, fundraising increasingly is concentrated among fewer managers: ’16 represented the lowest total number of funds since 2009. It marks the fourth annual decline in fund closures.

Andrew Moylan, head of real estate products at Preqin, notes that ’16 represented “another robust year of fundraising for private real estate funds, continuing a pattern of strong investor demand seen over the past few years. While individual annual fundraising totals do not match those seen in 2007-2008, the industry has raised more than $446 billion in the past four years, level with the cumulative total for the period between 2005 and ‘08,” thus reflecting the sustained institutional appetite for real estate.

Pricing for prime assets appears to be having an impact on investor demand for core and core-plus strategies, with fundraising in these strategies falling by a combined $3 billion to $11 billion in ’16. In contrast, Moylan says, “debt fundraising has increased, perhaps reflecting investor appetite for reliable income and a substitute for fixed income investments. Value added and opportunistic funds remain the largest part of the real estate sector, with a significant amount of investor capital seeming to move up the risk/return curve, seeking the potentially greater returns offered by higher-risk vehicles.”

As the current year began, there were a record 533 closed-end private real estate funds in market across the globe, seeking a combined $189 billion from investors. Preqin notes that this represents an increase in both the number of funds and the aggregate capital targeted compared to a year ago, when 489 vehicles sought a total of $174 billion.