GLOBAL - Institutional investors are maintaining their investment inprivate equity property funds as the credit crunch fails to quellenthusiasm for the asset class, according to private equity firm Preqin.
Data to be published later this month suggests 126 private equity real estate funds raised $79bn (€54bn) last year - although the eventual figure may overtake the $85bn raised in final closings in 2006.
Describing the signs for 2008 as "encouraging", the firm nevertheless acknowledged a slowdown in the second half of last year, with a slight Q4 recovery from the Q3 dip.
One trend identified by the research has been a geographic shift in investor focus from Europe to Asia. US funds still came out top, raising $36.5bn; meanwhile, 29 Asian funds raised $21.6bn, compared with $20.6bn raised by European funds.
"The general feeling towards real estate is good," said Preqin marketing manager Tim Friedman. "We've spoken to investors and overall they're confident about the real estate market. They're looking at least to maintain their current level of investment."
Asked whether predictions of attrition among property funds would extend to private equity funds, he said: "There has been a huge growth in the number of funds. The investor enthusiasm is there but the competition is immense. It's hard to have focused fundraising when the options are so many." The result will likely be increased investor emphasis on fund managers' track records than in 2006.
In the meantime, private equity "has become less of niche thing" as investors look for core yields outside traditional real estate vehicles, he said.
"Due diligence is taking longer than it did in the past and cheap debt isn't so easy to acquire, but returns are still good. They're still alternative assets but not as ‘alternative' as they were. That will continue as long as they continue to do well."
A survey of 180 European and North American public pension funds carried out by the same firm found 74% were satisfied with the performance of their private equity investments in 2006. A further 24% said their investments' performance exceeded expectations.