If you want a telling indication of the health of the private equity real estate sector as the coronavirus pandemic took a grip of the world, then look no further than this year’s PERE 100 ranking. The cut-off day for the ranking’s data entries was March 31, just as global contagion and death numbers started to spike.
The world’s economy has since continued to feel the force of the pandemic. It is expected to shrink 5.5 percent this year, according to London-based research provider IHS Markit, triple the impact of the 2008 global financial crisis.
As you will read in this dedicated report, private real estate’s top echelon has been backed to the hilt by its investors. Especially as the last bull run extended into a cycle-high, multiple-year plateau, these institutions have loyally kept re-upping with their tried and tested managers. Indeed, three-quarters of the managers raised higher five-year totals than before, led by the most tried and tested of them all, Blackstone, which saw its haul for the period extend from $55.3 billion last year to $64.9 billion this year.Whether ironic or just fitting, private real estate’s higher returning strategies, value-add and opportunistic, have attracted record capital in time to capitalize on the inevitable resultant distress. This year’s PERE 100, which ranks managers by the amount of equity they raised between January 1, 2015 and March 31, 2020, demonstrates an aggregate fundraising of $494.5 billion, up 11.8 percent on last year’s total.
Purely for financial reasons, however, these managers will be breathing a sigh of relief that their higher risk and return dollars have a greater calling now, as they were becoming harder to invest. According to Real Capital Analytics, the PERE 100’s net investing aggregate had almost halved in the last year. Furthermore, the ranking’s constituents only invested $3 billion in the month following the ranking’s data deadline. They invested $12 billion in April last year. RCA’s provisional research indicates May will be notably slower still.
Jon Gray, president of Blackstone, said on his firm’s first quarter earnings call that its real estate dry powder will start finding homes in up to one year’s time, as the devastation of the pandemic is properly felt. Other managers in the ranking are hoping to deploy before then. But all agree it is too soon to be meaningfully investing today.
Such sentiment might indicate less need for private real estate’s senior ranking of managers to continue their exponential fundraising growth over the coming few years. But then, given the state of so many other financial markets, do their investors have a choice but to keep ploughing equity into these vehicles?
PERE 100 methodology
The 2020 PERE 100 ranking is based on the amount of private real estate direct investment capital raised by firms between January 1, 2015 until March 31, 2020.
Where two firms have raised the same amount of capital over this time period, the higher PERE 100 rank goes to the firm with the largest active pool of capital raised since 2015 (ie, the biggest single fund). If there is still a ‘tie’ after taking into account the size of a single fund, we give greater weight to the firm that has raised the most capital within the past year. We give highest priority to information that we receive from, or confirm with, the private real estate firms themselves. When private real estate firms confirm details, we seek to ‘trust but verify’. Some details simply cannot be verified by us, and in these cases, we defer to the honor system. In order to encourage co-operation from firms that might make the PERE 100, we do not disclose which have aided us on background and which have not. Lacking confirmation of details from the firms themselves, we seek to corroborate information using firms’ websites, press releases, limited partner disclosures and other sources.
• Limited partnerships
• Co-investment/side car vehicles
• Seed capital or manager commitments
What does not count?
• Expected capital commitments
• Open-ended funds
• Public funds
• Funds of funds
• Non-discretionary vehicles
• Secondaries vehicles
• Private equity
• Hedge funds
• Capital raised on
a deal-by-deal basis
• Debt issuing funds