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Slate wraps up second opportunity fund at $572m

With co-investment capital and debt, the Toronto-based manager has approximately $2bn of investment power with the vehicle.

Slate Asset Management has completed the fundraising for its second North America-focused opportunity fund, PERE can reveal.

The Toronto-based manager is expected to announce tomorrow it has held a final closing of C$572 million ($450 million; €417 million) for its Slate Canadian Real Estate Opportunity Fund II, beating the vehicle’s original target of $450 million.

Blair Welch Slate Asset Management source Slate AM
Welch: ‘I don’t think all the scars from covid have shown themselves yet’

With co-investment capital and debt, the firm could have a war chest for the vehicle of approximately $2 billion.

PERE reported its first closing of $310 million in May 2020, made up entirely of repeat investors from its Slate Canadian Real Estate Opportunity Fund I, which closed on C$311 million in May 2018. Among the first close investors was AIMCo Realty Investors, the real estate investment arm of the Alberta pension investor; BMO Private Equity, a division of the Canadian bank; the limited pension trust for the Ford Motor Company of Canada, per PERE’s prior reporting.

About half of the investors in Fund II were new to the firm. They include endowments, family offices, other North American pension funds, a large German public pension and clients of capital advisory firm Townsend Group, which is part of global professional services firm Aon.

Blair Welch, co-founder of Slate, said the firm hit pause in its fundraising effort between first and final closing as it assessed market conditions caused by the financial impacts of covid-19. He said the pandemic, and now the current conditions caused by inflation and the conflict in Ukraine, have presented the fund with two different investing environments.

He said: “We were really happy with our first close of re-ups. But as a thoughtful manager, we also wanted to see what was happening with the world.”

“Coming into 2021, we did some compelling deals so then investors saw what we were doing. Then we focused on closing out the fund in the last 12 months.”

Welch said the investing strategy for the fund has been threefold. The first part entailed cyclical opportunities from certain sectors that will come under pressure in the current environment. The second part was buying portfolios from groups which have changed focus since the pandemic began. The third was picking off single-asset transactions that “could have a story around vacancy, redevelopment, or even just development,” he said.

While he said the start of the pandemic had led to attractive deals, he believes the removal of various government support mechanisms and the current inflationary environment will lead to various business plans needing radical re-underwriting. That could lead to the need for his firm to provide capital solutions. “I don’t think all the scars from covid have shown themselves yet,” he said. “I think the world of inflationary pressures is creating a whole new situation which will create instability or liquidity pressures. Is the covid situation better than Q2 2020? Yes. But that’s not finished yet.”

Among the fund’s deals was Slate’s $2.3 billion purchase of Annaly Capital Management, the US mortgage REIT business, in April 2021. Although Slate has been an investor in the US since 2010, the deal represented the firm’s entry in the US market through its opportunity fund series. Welch said Fund II is able to have investments in the country, a difference from Fund I, which was purely a Canadian affair.

“But Canada is where we’re from and where we’re focused. It is our niche,” he said. “There are not too many discretionary pools focused on Canada, so we like the strategy.”

Welch would not confirm fund performance numbers, but said the vehicles were targeting a 20 percent IRR and 2x equity multiples, in line with typical expectations for opportunity funds. He said Fund I’s performance was tracking this target. “I’m confident we’ll double investor money,” he said.