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Chart of the Week: Rise of debt funds

The rise of debt funds carries on into 2013, as it finally overtakes value-added to become the second most popular strategy.

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The popularity of private equity real estate (PERE) debt funds continues to be manifested in the third quarter of 2013, as capital raised for such strategy amounted to $7.4 billion, which is $2.2 billion more than the capital raised by value-added vehicles. Prior to 2013, value added was the second most popular PERE strategy. $17.5 billion has been raised by debt funds in the first three quarters of 2013, surpassing the total amount raised by value-added funds by $1.5 billion.  

The closing of three of the largest PERE debt funds in the third quarter accounted for approximately 31 percent of the overall capital raised by the ten largest private real estate vehicles in that period. The largest debt fund to close in the third quarter was the Blackstone Real Estate Debt Fund II, which closed on $3.5 billion. The fund exceeded its $3 billion target which further highlights the strong level of appetite for debt strategies amongst investors. Although the ten largest funds remained to be dominated by opportunistic funds, debt capital beat the amount fundraised by value-added vehicles by approximately 10 percent.

In interviews with PERE’s Research and Analytics team, LPs revealed that they are looking to invest into senior and mezzanine debt. According to a European corporate pension fund, senior debt offers an enhanced level of security for investors whilst mezzanine debt provides attractive returns for LPs. 

Click here to find out more about fundraising numbers from PERE's Research & Analytics team.