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LPs could demand shorter fund investment periods

As the balance of power swings from GPs to limited partners, fund managers in New York today predicted investors would call for shorter investment periods for PERE funds in a bid to boost their liquidity. In the search for capital sources though, GPs were advised to watch super and high-net-worth individuals "closely".

Limited partners could demand shorter investment periods for closed-ended real estate funds as they attempt to realign their liquidity risks, GPs warned at a New York conference today.

Speaking at the annual IMN US Real Estate Opportunity and Private Fund Investing Forum, fund managers admitted it would be “extremely difficult” to secure new commitments from traditional capital sources over the next 18 months to two years, as many institutional investors reevaluated their portfolios.

However when investors started to come back to the asset class, LPs would not be willing to accept the same level of risk.

Joseph Sitt, president of Thor Equities, told delegates that LPs would look to invest with “fewer managers, make smaller commitments” and make sure they were more targeted than previously seen over the past few years.

He also warned that LPs could look for shorter investment periods for closed-ended real estate funds. “You might not get four years to invest your capital [in future]. Investors could look to shorter periods as they try to limit ther illiquidity in the asset class
Despite traditional sources of capital, such as public pension funds, endowments and foundations, proving hard to secure at present, Park Hill Real Estate managing principal Charles Purse said the “super” high-net-worth community was an area to watch “very closely”.

“They see an opportunity to create generational wealth. It's something they have done before and they see that opportunity again.”

Transwestern chief investment officer Jeff Johnson said traditional sources of capital for private equity real estate funds were suffering, just like fund managers. However echoing Purse's comments, he added: “THe high-net-worths will be the first ones back into the market. They are the most interested [in real estate]. The least interested are the endowments.”