Institutional investors are committing larger sums of capital to fewer private real estate funds, according to Preqin’s latest Outlook for Real Estate research report.
This could be due to concerns over deal flow, as a firm’s ability to demonstrate a strong track record and source deals ranks highly among limited partners (LPs), the company said.
Around 87% of surveyed general partners (GPs0 expect to see consolidation within the fund management industry by 2020, including 8% that expect to see a significant amount of consolidation between real estate firms. Recent examples include the 2014 merger of TIAA-CREF and Henderson Global Investors to form TH Real Estate, with some $99 bn in AUM.
More recently, Aberdeen Asset Management and Standard Life announced a merger to form Standard Life Aberdeen, which is expected to complete in the second half of 2017.
‘Fund managers expect increased consolidation in the industry, which could lead to a two-tiered fundraising market in which the established and larger fund managers are able to fundraise quickly and successfully, while the majority of fund managers compete for the remainder of investor capital,’ commented Oliver Senchal, head of real estate products.
The private real estate market has seen annual fundraising increase by 134%, from $51 bn in 2009 to $120 bn in 2016. Accordingly, the number of active closed-end private real estate fund managers has been increasing since 1990, and peaked at 1,295 in 2015.
However, the pace of growth is slowing and the number of new firms established each year has decreased over time, from a high of 126 in 2006 and 2007, to 37 in 2016. Despite this, the largest proportion (42%) of fund managers expect an increase in the number of GPs in the industry by 2020.
