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For smaller fund shops, a sharpshooter approach works best

Two fundraises reported this week demonstrate the importance of investment focus in the absence of scale.

The top tier of real estate fund managers keeps growing, buoyed by multi-billion dollar diversified fundraises. However, for new entrants and smaller firms – those raising funds of less than $1 billion – it makes strategic sense to employ a sharpshooter mentality.

Take Fiera Real Estate UK, the UK real estate arm of Canadian manager Fiera Capital. The London-based firm previously raised a series of diversified opportunistic vehicles but began marketing a logistics-focused vehicle late last year. This week, PERE reported that Fiera had amassed £170 million ($208 million; €198 million) in an initial close for its Real Estate Logistics Development Fund – nearly the same amount of capital as it did for its fifth opportunity fund, which raised £180 million. The target for its logistics fund is £300 million. Should it hit that, Fiera will raise its largest fund ever, eclipsing the £225 million it raised for its fourth fund, which currently holds that distinction.

Fiera’s UK chief executive Alex Price told PERE that the logistics opportunity was “worthy of its own vehicle rather than lumped into a larger vehicle.” The firm opted to forego a follow-on fund in its diversified series in favor of the specialized vehicle because of the structural shift in the UK logistics market. The firm also felt comfortable with its specialization in the asset class, delivering 3 million square feet in the past few years from its existing funds. Price added the plan is to launch more funds in this vein later in the year, with residential build-to-rent another expertise Fiera may leverage into a sector-specific offering.

In the US, Brasa Capital, a Los Angeles-based firm founded in 2018 by former AEW executive Eric Samek, just closed its second fund, which amassed more than triple the amount of capital of its predecessor.

While not sector-specific, Brasa Real Estate Fund II has had a heavy focus on industrial and outdoor storage properties in its investments so far. The firm also is a sharpshooter in limiting the size of its fund investments to between $5 million and $35 million.

Real estate funds with a sharpshooter approach have clearly resonated with investors. Indeed, sector-specific fundraising has been on the upswing in recent years. In 2020, around 20 percent of total capital raised was in sector-specific funds. In 2021, that number jumped to 32 percent, according to PERE data. In the first quarter of this year, more targeted vehicles accounted for over half of all capital raised.

In each of the three years, the vast majority of the funds were raised by smaller firms, PERE data showed. More than 85 percent of the vehicles were under $1 billion in size and no single fund exceeded $3.5 billion.

Firms have continued to launch with specialization in mind. Earlier this month, the former head of Europe for Harrison Street, Daniel Gorzawski, launched Westwind Capital, a London-based firm that will invest in alternative real estate sectors across the region. He expects his years of experience in this highly specialized space will be a competitive advantage for Westwind, which also expects to eventually raise discretionary funds.

With existing managers like Fiera shifting its fundraising approach and new entrants like Westwind coming to market, we can expect the growth of sharpshooter fundraising to continue.