The average size of a fund fell 23 percent in 2012 to $381 million, according to the real estate investment advisory firm Swisslake in its 2012 Market Report.
The research – released today – revealed the average size of a private equity real estate fund dropped from an average of $495 million in 2011, adding that the current average fund size was “far –off” the long term average between 2005 and 2011 of $463 million.
Although the number of funds slightly increased from 245 to 248, the firm said 2012 was the second worst for private equity real estate funds since the outbreak of the financial crisis in 2008. In total, the target equity volume “significantly dropped” from $121.3 billion in 2011 to $93 billion this year.
Swisslake, which is based in Switzerland and Singapore and is led by Bernard Koehler, also said there had been a decline in Asian and global/rest of the world funds. The level of Asia vehicles fell back to levels recorded in 2009 and 2010 after a “promising year” in 2011 when 50 new vehicles with a target equity of $24.3 billion were launched. Global funds and funds focused on emerging markets also recorded decreasing volumes as the target equity volume declined. In contrast, European funds were able to increase their market share this year.
In respect to the risk-return profile of funds, 2012 has been marked by increased volumes of core and value-add funds as these respectively recorded market share from 21.9 percent in 2011 to 26.1 percent in 2012 and from 27.4 percent to 33.4 percent respectively, said Swisslake.
In contrast, the market share of opportunistic funds declined from 50.7 percent to 40.3 percent. Swisslake said that was primarily due to the lack of investment opportunities coupled with the constrained financing availability for these type of investments as well as the decrease in the number of Asian and global funds that mainly adopted opportunistic strategies.