Preqin: Private Equity Real Estate Fundraising Slows in Q3

(October 10, 2011) — Private equity real estate fundraising has slowed slightly in the third quarter of 2011, research by Preqin has shown. 

According to the firm, 17 private equity real estate funds reached a final close in Q3, raising an aggregate $11 billion — a 16% decline on the $13.1 billion which was raised by 27 funds in Q2 2011.

The more difficult fundraising environment follows a decreasing number of leveraged buyouts. Preqin’s quarterly deals data showed 674 private equity-backed buyouts deals worth an aggregate $60.6 billion were announced in Q3, a 23% decrease in value from the previous quarter’s total of $78.7 billion.

“The $11 billion which was raised in Q3 represents a small decrease on the capital raised the previous quarter, although we anticipate the latest quarterly fundraising figures to improve by around 10-20% as more information becomes available,” said Andrew Moylan, Preqin’s Manager of Real Estate Data. “There were a number of significant interim closes in the quarter, which does indicate that there is momentum in the fundraising market. The level of competition remains intense, however, with more than 430 funds currently in the market. While several firms have closed funds on or above target in Q3, many others have been forced to delay anticipated closings.”

Preqin’s findings revealed that institutional investor appetite for private equity real estate funds remains mixed. Only 35% of investors expect to make new fund commitments in the next 12 months, although a further 16% have yet to decide whether they will be active in the coming year. Additionally, Preqin’s data showed that in the medium and longer term, very few investors are abandoning the asset class, as a total of 69% of all investors in private real estate funds are currently below their overall target allocations to the asset class. “Fund managers will have to work hard to stand out from the crowd in order to achieve fundraising success and many will still face long fundraising periods, with no guarantee of success,” a release by the research firm stated.

In terms of geographic region, funds with a primary focus in North America raised the most capital during Q3, with six funds raising an aggregate $5.5 billion. Nine Europe-focused funds reached a final close, raising $4.8 billion, while two Asia and Rest of World-focused funds raised $0.7 billion. Furthermore, Preqin found there are currently 434 funds in market, targeting aggregate commitments of $148 billion. The aggregate target has increased since July 2011, when 435 funds were targeting commitments of $138 billion.

Looking ahead, Preqin’s analysis of institutional investors in private real estate found that only 35% expect to make new fund commitments in the next 12 months, 49% are unlikely to invest, and a further 16% have yet to decide whether they will be active in the coming 12 months.

In September, Preqin found that emerging markets are bracing for an influx of infrastructure investment, with South America and Asia having taken the lead. “The study suggests that the outlook for the asset class is really positive,” said Preqin’s Elliot Bradbrook. “More money is likely to flow into the industry in the coming year, and as our previous study of investors showed, almost two-thirds are planning to continue investing in unlisted infrastructure in the longer term.”

The firm found that half of infrastructure investment consultants believe that Asia will offer attractive investment opportunities during the next 12 months, while 42% view South America favorably. In addition, Preqin said it expects Europe to remain the focus of infrastructure investment over the short-to-medium term, with the industry likely to expand in both the emerging markets and North America. Preqin’s research showed that 42% of infrastructure investors are pension plans; 19% are public, 17% private and 6% superannuation schemes.