Return to search

Friday Letter: Maybe next year

Europe only managed to produce two of PERE’s top 50 private equity real estate firms by capital raised, but certain data suggests the region could produce a stronger showing in 2016.

This year’s edition of the PERE 50 ranking, PERE’s signature ranking of private equity real estate firms by capital raised over the last five years, was dominated by US-based firms. In fact, only two European firms made the cut: London’s Kildare Partners and Hamburg’s ECE Real Estate Partners.

Yet, in spite of a dearth of European fund managers in this year’s ranking, there are signs that 2015 fundraising could push some of the region’s best known fund managers back into the top 50.

According to PERE’s in-house Research & Analytics team, there are 64 European fund managers currently in market, targeting a total of $31.25 billion for value-added and opportunistic funds. Among them are Tristan Capital Partners, targeting €950 million for its latest European value-added and opportunistic fund, Rockspring Property Investment Management, which is aiming to corral €400 million for its TransEuropean series, and Patron Capital, which is looking for more than €1 billion.

Key to the success of these, and the other European fund managers too, is being able to access the largest pools of capital from across the globe. Speaking anecdotally to European fund managers, we have heard it said that US investors will be their first port of call for this cycle’s fundraise.

Due to factors such the volatility of equities, bonds offering very little yield, a fall in the value of the Euro, as well as the European Central Bank’s (ECB) quantitative easing program, many within the private real estate sector predict an increased demand for European real estate from US capital.

In fact, CBRE’s latest Global Investor Intentions Survey revealed that among investors looking to invest outside their own region, 31 percent of respondents identified Western Europe as the top destination – the most of any region. Even better news for European GPs is that 45 percent of investors indicated a preference to invest via funds, rather than going direct.

Sector research also points to investors wanting to move up the risk curve in search of greater returns. The most recently published investor survey from the European Association for Investors in Real Estate Vehicles (INREV) said opportunity funds had seen a significant gain in popularity with investor interest rising from 7.1 percent in 2014 to 17.8 percent in 2015. And for European managers targeting US investors, the survey delivered even more favorable statistics as 91 percent of US investors preferred value-add or opportunistic fund strategies to core.

However, all of these auspicious fundraising statistics do not tell the whole story. When it comes to Europe, US investors might be expressing an interest but only be selecting one or two managers, whereas in the US they understand the market nuances better and are more comfortable making commitments to a number of different funds in one year. So maybe US capital will flood the European market and a host of new names will make the top 50. But on the other hand, maybe they will be crowded out by US firms once again, and only a select few European fund managers make the grade.