FUNDS: Geography revision

Peakside Capital, the Zug-based real estate investment manager, reached a €140 million final close on its second value-add/opportunistic vehicle last month.

With the fund, the spin-out from Bank of America Merrill Lynch will have total firepower of up to €400 million to invest in value-add and opportunistic transactions mainly in Germany. Yet, that was not always the plan.

The firm, after all, initially wanted to market a fund focused not only on Germany, but also Central and Eastern Europe (CEE), with a target of €200 million to €300 million.

But, according to Stefan Aumann, managing partner and head of asset management of Peakside Capital: “it wasn’t really appreciated to have a vehicle investing in Germany and CEE as a combined fund. During the discussions we had with investors, we ultimately said that it’s probably better to split this up and cater to the investment demand.”

At the same time, Peakside entered into a separate account mandate with a large sovereign wealth fund for value-add and opportunistic investments in CEE, taking its overall equity commitments to well in excess of its initial €200 million target for the strategy.

Peakside was originally a pan-European group when it spun out of Merrill Lynch, and raised its first fund – a €260 million pan-European vehicle – back in 2010. But, the firm wanted to refine its strategy, believing that investors would want specialized managers, and saw Germany and CEE as the geographies with the potential to provide the best performance.

“When we really hit the road, we would have been better off marketing a pan-European fund,” said Boris Schran, managing partner and head of acquisitions and origination of Peakside. “Investors didn’t really want to differentiate themselves within Europe by targeting certain markets, they’d rather have someone who is taking the selection of the markets off their hands.”

Other fund managers speaking to PERE echoed this sentiment. Many said that being a sector or geographical specialist isn’t now always seen as a positive as some investors harbor concerns that money will be out of action if a sectoral or geographic opportunity closes after capital has been committed.