The pulling power of the largest real estate fund management firms has led to one-third of all capital raised in 2013 to be placed with just 10 funds, PERE can reveal.
In its year-end report, PERE’s Research & Analytics division noted that a total of $102 billion was raised last year by 203 funds. However, some $32.5 billion – or one-third of the total – was placed with just 10 funds, underlining how capital is being concentrated in the hands of the few.
Overall, fundraising seems healthy in the private equity real estate industry. The 2013 tally marks a five-year high – the most since the vagaries of the global financial crisis of 2008. Still, the $102 billion in 2013 was raised by 203 funds, which is 37 funds fewer than in 2012.
PERE’s annual investor survey, published in October 2013, showed that investors, while keen on the asset class, planned to trim the number of managers with which they work. Indeed, one in four said they had too many managers on their books.
Lone Star Real Estate Fund III, managed by Lone Star Funds, was the largest real estate fund to close in 2013. The closing took place in the last quarter of the year and collected $6.6 billion for global investment opportunities. Three other firms – The Blackstone Group, Starwood Capital Group and Brookfield Asset Management – closed funds of over $3 billion in the year.
Funds with a global investment mandate and those focused on North America proved most popular in 2013, collecting $31 billion and $32.4 billion, respectively. However, there has been little appetite for private equity real estate investment in Central and Eastern Europe, Latin America and the MENA region. An aggregate of just $500 million was raised for investment in those regions during the year.
Dan Gunner, director of Research and Analytics, believes that private equity real estate overall has shown a slow but steady recovery. “It’s a split picture, though, as we see fewer funds raising the bulk of the capital,” he said. “Just over 200 funds have closed in the year, but around one-third of capital, some $32.5 billion, was placed with the 10 largest. This story fits in with conversations we have had with investors in 2013. They want more real estate in their portfolios, but that doesn’t necessarily mean more manager relationships. The average size of funds closed has therefore increased.”