Investors may be racing back into hedge funds, and to a much lesser degree, to private equity funds. But, they still want little part of real estate.
London-based Preqin points out in a new report that private equity real estate funds raised $9.8 billion worldwide in the first quarter of 2010. Sure, this was a small uptick from $9.4 billion in the fourth quarter of 2009. However, it marked the third straight quarter in which less than $10 billion was raised.
This is just one-quarter of what investors were pouring into the asset class just two years ago, when $41 billion was separately plunked down in the second quarter as well as third quarter of 2008.
Little surprise, by the final quarter of 2008, the total more than halved to $20 billion as the financial world — led by real estate prices — was seemingly imploding and heading to a possible depression. “Investors are stunned by the fall in their real estate portfolio,” says Andrew Moylan, Manager, Real Estate Data at Preqin.
Those who are able to raise money are working a lot harder and pulling in a lot less than they have grown accustomed to. For example, funds which closed in the first quarter of 2010 spent an average of 18.8 months raising their dough. This compares to less than 10 months for funds which closed in 2006. And just two funds raised more than $1 billion.
The largest real estate fund to close in the first quarter was Morgan Stanley Real Estate Fund VII Global, with $5.2 billion. However, its previous fund had raised $8 billion. Beacon Capital Strategic Partners VI raised $2.5 billion, down from $4 billion for its previous fund.
Most of the new funds figure to concentrate on the distressed North America and Europe markets, which have declined a lot more than those in Asia, according to Moylan. Sponsors, however, are not exactly getting out of the business. There are currently 147 funds looking to raise about $383 billion of money. This is way down from the 173 funds passing the hat in the first quarter, seeking slightly less total money.
So, who invests in private equity real estate? By far the biggest group is Public Pension Funds, comprising 26 percent of the investors. Endowments and Family Offices/Foundations each make up 12 percent while Private Sector Pension Funds account for 11 percent of the investors.
Stephen Taub, who has covered the hedge fund industry for 30 years, is a contributing editor to Institutional Investor and Absolute Return-Alpha magazines.
