Fundraising in the third quarter dropped to its lowest level since 2009, according to PERE data released Tuesday.
Managers brought in $10.8 billion across geographies, down from $29.2 billion during the second quarter and $23 billion in Q3 2016. Last quarter’s equity haul was the lowest since Q3 2009, when managers raised $10.6 billion.
The number of funds closed last quarter – 26 – also hit its lowest third-quarter tally since Q3 2009, when 21 funds closed during the quarter.
The decrease in fundraising comes as little surprise to many market observers. As managers sit on record amounts of dry powder – $239 billion at the start of 2017, according to advisory services firm EY – fundraising has slowed, with managers struggling to deploy the capital they have amassed.
“The problem is when you enter an environment of uncertainty,” Mark Grinis, global real estate fund services leader at EY, told PERE earlier this year. “That uncertainty has the general characteristic of throwing some sand in the gears, which it has. You couple that with high amounts of dry powder, and it slows down transaction volumes and as a consequence, it slows down fundraising.”
One New York-based placement agent told PERE that limited partners’ mature portfolios have led to few new checks written for real estate funds.
“When we’re taking clients out to capital raise, LPs are saying, ‘Let’s wait and see,’ before committing,” the placement agent said.
Because of that reluctance to commit capital, more clients are looking to expand their product offerings, he added. Debt, for example, was the strategy that attracted the second-largest pool of capital during the third quarter, with $3.5 billion raised, per PERE data. The most popular strategy, opportunistic funds, gathered $3.7 billion.
Despite the decline in fundraising overall, 14 funds that closed during the last quarter were on or above target size, compared with four vehicles that came in under target. Additionally, repeat fundraisers garnered more capital for their most recent vehicles than their predecessors, per PERE data. Of the 15 successor funds closed in the third quarter, 12 brought in more capital than the previous vehicle in the series.