Investors to Real Estate Private Equity: We don’t want any (right now)!
| Oct 8th, 2009 | Filed under: Private Equity, Real Estate, Today's Post | By: AAA Staff |
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Apparently hedge funds aren’t the only ones having doors slammed in their faces these days.
According to a report released this week by PREQIN (Private Equity, Real Estate, Hedge Funds, Infrastructure), private equity real estate funds worldwide raised just $4.9 billion in the third quarter, the lowest quarterly fundraising total since 2003.
While at first blush one might presume it’s the lousy U.S. real estate market’s fault, in reality it’s more a reflection of investors’ still-cautious appetite for deals, and in turn their cautious appetite for investing in funds that invest in deals.
Indeed, many investors remain capital-constrained, or are being cautious about committing to firms until they are sure the funds can hit a certain minimum level.
PE Real Estate Fundraising
“Investors are very cautious, with many having seen significant declines in their real estate portfolios and are reluctant to commit to new vehicles,” says PREQIN.
With banks slow to write down the value of their real-estate portfolios, investors may not feel the need to rush back into the market, the report says.
No kidding.
The reality is that despite huge amounts of cash on the sidelines, most investors, particularly institutions, are keeping away from longer-term, somewhat-illiquid vehicles, never mind those focused on real estate.
What it boils down to is the losses private equity funds and everyone else took in 2008 — and convincing investors in the aftermath that those losses were a one-off event. Add to that still-tight credit markets and deal flow for private equity firms remains stagnant, whether real estate or anything else.
Quarterly figures recently released by Dow Jones Private Equity Analyst are a case in point: In the third quarter, 72 funds secured $25.2 billion, a 70% drop from a year ago. Year-to-date, buyout shops have seen fundraising slide 59%, from $195 billion raised by 315 funds through the third-quarter 2008 to only $79.9 billion thus far in 2009.
A separate report this week by Hedge Fund Intelligence noting hedge fund assets under management have also continued to decline shows the exact same thing.
A case of concern over a still-sour housing market, or a case of cold feet and hard lessons among investors? We’re betting both.
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- 2010 seen to be a year of bottom fishing for institutional real estate investors
I wonder how the smaller funds play into this – those that fly under the radar – say under $50 million.
It seems as if there is non-institutional money that is willing to step in to the market. My observation is anecdotal as from increased interest and activity for my real estate investment fund templates.
I wonder if the thought is that 1) with a clean, new portfolio, investors do not have to contend with unknown problems in a portfolio; and 2) that the investment are probably local or regional in nature (my assumption based on the size), and investors take comfort in driving by “their investments”.
[...] All About Alpha talks about the drop off in fund raising for real estate. The data presented is from larger funds, which are attracting commitments from institutional investors. [...]