The total equity haul exceeds the fund’s €1.25 billion target by 68 percent. Such was the investor demand for the vehicle, however, that the real estate arm of Swedish private equity firm EQT was unable to accommodate an additional 25 percent in commitments.
“There absolutely was more demand than we could provide in this particular investment vehicle,” said Ward Fitzgerald, partner and head of EQT Exeter, in an interview with PERE. “We feel this is an exceptionally responsible amount of capital for us to place at the profitability levels that our client/investors have grown accustomed, and by enlarging it to take all the demand would have put some of those return targets at risk.”
Fitzgerald added that EQT Exeter limited the amount of capital coming into EELVF IV by both reducing the commitment sizes of some investors while turning away other groups entirely. The limited partner base included public and corporate pension funds, sovereign wealth funds, insurance companies, asset management firms, commercial banks, endowments and foundations, private wealth investors and family offices. Sixty-five percent of the fund’s capital came from North America, with the remainder split roughly between Asia and the Middle East and a small percentage from Europe. About three-quarters of EELVF IV’s LPs made follow-on commitments, while 25 percent were first-time investors.
Among the US pensions that backed the vehicle were New York State Common Retirement Fund and New York State Teachers’ Retirement System, both of which committed $200 million; and New Mexico State Investment Council, which agreed to invest $100 million.
EELVF IV is EQT Exeter’s largest-ever fund, surpassing the 2017-vintage Exeter Industrial Value Fund IV, which attracted approximately $2 billion. The vehicle is also the first to close following the merger of EQT’s real estate business and Exeter Property Group, which was completed in April. Exeter had already held the first close on 25 percent of the vehicle’s capital prior to the transaction, while the remaining 75 percent of commitments were in process, according to Fitzgerald. “While EQT did not bring in a significant number of new investors, the excitement grew by the institutional investment community to join the fund because of the elevation of the Exeter organization by the combined entity,” he said.
The fund will focus on the primary distribution markets and e-commerce hubs in Europe, including the UK, Germany, France, Poland, Spain, Ireland, Czech Republic, Italy and Netherlands. The vehicle’s targeted strategy allocation will be 60 percent re-letting or lease renewals of well-occupied, short-term leased assets; 25 percent redevelopment and development; and 15 percent lease-up of vacant properties.
“The fundamentals are so strong that we are not able to acquire as much vacancy as we might have in prior economic cycles, so we are buying more short-term let assets with rental rate growth potential and slightly more development,” Fitzgerald noted.
With €1.25 billion of equity, EQT Exeter anticipated making 100 to 120 investments with an average equity size of €10 million-€15 million, according to documents from NMSIC. Although EELVF IV attracted significantly more capital than originally anticipated, the firm is not expected to pursue larger transactions for the fund. “We believe we add most value to our clients and get the best performance for our investors by staying focused on that small and mid-cap asset transaction,” he added.
The fund has a gross return target of 18-20 percent utilizing 65 percent leverage, the NMSIC documents showed. The predecessor vehicle in the series, the 2018-vintage Exeter Europe Value Venture III, was generating a time-weighted inception gross return of 16.3 percent as of Q3 2020, while the 2014-vintage Exeter Industrial Value Fund III was producing a gross return of 30.5 percent and the 2017-vintage Exeter Industrial Value Fund IV a gross return of 24.1 percent.