Benson Elliot's recent fundraising proved two things. One is that there is still appetite among institutions to get exposure to “the right kind” of European real estate, manager and fund structure.
The second is that getting the timing right is challenging even for the smartest firms.
Benson Elliot, a mid-market London-based private equity real estate firm, has corralled €510 million for Benson Elliot Real Estate Partners III (BEREP III). The first fund raised €335 million in 2006.
As well as existing investors agreeing to increase investment size, the fund attracted a small number of new investors such as UTIMCO, one of the largest university endowments in the US.
In what Benson Elliot founder Marc Mogull calls the “worst market in history”, appetite still exists for those that can demonstrate performance, consistency, transparency and alignment of interests, he said.
“Obviously, you have got to be dealing with investors who believe that current market conditions will throw off extraordinary investment opportunities as well,” he added.
Unusually, perhaps for opportunity funds, Benson Elliot went back to investors at a time when only half of the firm's first fund had been deployed.
Mogull said investors gave Benson Elliot credit for having scaled back the fund size in 2006, unlike many others raising funds at the time, and for investing selectively thereafter.
He acknowledged that, in hindsight, Benson Elliot may have “called the top of the market too early”. But he added: “We just thought 2006 and 2007 was the wrong time to be doubling down on 2000-2004 investment volumes, so we went out and raised a very small fund – just enough to support the platform – and we deployed it slowly.
“But at the beginning of last year we took the view that, with the market having clearly turned, now was the time to make sure that we had the firepower to take advantage of what could be phenomenal opportunities over the next two or three years.” Investors gave a seal of approval for the firm to raise a second fund early, he adds.
Mogull reflects that stock market levels at the beginning of 2008 were a factor in persuading the firm to go out fundraising again. “I had a concern that there was going to come a time in 2008 – and it came not too far thereafter – that the stock market had to fall if the economy was heading into tough times. I feared that from that point forward it would get progressively more difficult for even the best managers to raise money, regardless of the opportunities, so we took the decision, with our investors, to go early,” he said.
Inevitably, stock markets did fall and Benson Elliot found itself in a tough climate to raise a fund. Nevertheless, the equity was raised. Probitas Partners advised the firm.