If you think this year's list of the 30 largest private equity real estate firms in the world is interesting, wait until you see next year's list!
The PERE 30, launched a year ago and updated in this issue you now hold, is a snapshot of 30 firms in motion. And what motion we've been seeing of late. The PERE 30 measures a firm's “size” using a unique methodology – we only look at direct-investment capital raised over the past five years for limited partnerships with stated value-added and opportunistic strategies.
No REITs, no core funds, no separate accounts, no debt funds. We feel the list is the most accurate ranking of the general partners who are, more than any other players in global real estate, at the cutting edge of transforming assets and responding rapidly to opportunities around the world.
The original “opportunity” funds of the early 1990s spawned an industry within real estate that was unique in the degree of control it gave to the fund managers and in the affect it had on the way institutional investors viewed their real estate allocations. The PERE 30 are the most significant players within that continuing trend, although not all of them will be around in the years to come.
Is the established order of private equity real estate about to fundamentally change? Yes and no. Zoe Hughes writes on p. 45, there has been much talk within the investment community about moving toward what might be called the “old days” of real estate investment management – separate accounts, more control and veto power residing with the investor and fewer commingled accounts. A move in this direction would chip away at what defines the PERE 30.
We don't see such a trend gaining momentum, however. Now more than ever, successful institutional real estate exposure requires active management, asset transformation, development and global diversification. Private equity real estate, as PERE defines it, is best situated to deliver this mix of resources. Private equity real estate funds, properly structured, align interests and bring to bear resources not available through separate accounts. In other words, if you want to be a part owner of a mall in Beijing, you should go with a team that specialises in these assets and wants to do multiple deals with capital that they know will be there when the time is right to strike. That's the private equity fund approach.
Certainly there will be profound changes to fund structures, to employee rosters and to the names stamped on the PPMs of the future. Investment talent will go where the best opportunities are, but we believe many of the best opportunities, and people, will end up in funds controlled by the PERE 30.