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Barings closes largest European value-added fund

The Charlotte, North Carolina-headquartered global manager raised 70% of the fund’s capital from investors outside of the region.

Barings has closed its second European value-added fund, Barings Real Estate European Value-Added Fund II, at its €850 million hard-cap.

The fund exceeded its initial €750 million target and is more than the double the size of the €350 million first fund in the series. BREEVA II received over €1 billion of interest from investors. There is also the potential for existing investors to invest additional capital alongside the fund in any larger transactions the fund is pursuing, Charles Weeks, Barings’ head of European and APAC real estate, told PERE. PERE has learned that, given demand seen in the fundraise, there will likely be further funds in the series.

Around half the equity in BREEVA II came from new investors, with 70 percent of capital coming from non-European investors. Weeks said that US investors tend to prefer value-added investments in Europe rather than core while APAC interest in the strategy has been steadily increasing, hence the majority of interest coming from outside the region. Both Kentucky Retirement Systems and MassMutual – the parent company of Barings – re-upped to the fund. Both committed €212.5 million, an increase of €37.5 million above their €175 million BREEVA I commitments, according to the PERE database.

Barings could begin raising its third European fund as early as Q1 next year, PERE has learned. That is largely because the firm has already deployed around 30 percent of BREEVA II’s capital in eight transactions in the UK, Germany, Sweden and Italy, including a €40 million acquisition of a vacant office property in Milan. With the fund, the firm will focus primarily on office and industrial properties, two property types that represented around 90 percent of total equity transaction volume for the firm in 2021. The firm currently has a €1 billion pipeline for BREEVA II, of which industrial makes up the lion’s share.

Weeks was reticent to give exact details on the breakdown of the fund’s portfolio, instead saying Barings preferred to let the market and dealflow dictate the opportunity set. Transitional offices, including build-to-core opportunities, and residential opportunities in Italy, Spain and the UK are both areas that could complement the overweight to industrial.

“We expect residential to be a growing component of the business,” Weeks said.

The final close for BREEVA II comes on the back of strong performance for the predecessor fund in the series. With BREEVA I, the firm has generated a 45 percent gross IRR after exiting around 60 percent of the fund’s investments to date. That return includes a more than 60 percent IRR for an office asset in Milan and a return in excess of 40 percent for a logistics asset in Madrid.