Earlier this week it emerged that Blackstone's chairman and CEO Stephen Schwarzman earned $1 bn last year.

Earlier this week it emerged that Blackstone's chairman and CEO Stephen Schwarzman earned $1 bn last year.

According to US magazine Crain's New York Business, the 68-year-old investor is now on record as the first to earn this astronomical figure. Until now, the record was held by Apple founder Steve Jobs who raked in $578 mln in 2000.

This is by no means the first time that the private equity giant has grabbed the headlines. Indeed, the New York-listed company has dominated our own headlines in the past few years in relation to the mega funds it has raised in the private equity real estate arena. And its aggressive acquisition strategies have earned it the title of the 'silverback gorilla' in the European real estate jungle.

The latest news on Schwarzman's earnings comes on the back of record results in 2014: over the year, Blackstone distributed a record $45 bn to its fund investors and generated significant inflows of $57 bn. In Europe alone, the US alternative assets manager forked out a staggering €15 bn in 2014 on real estate loan portfolios and assets. Over the full year, Blackstone reported profit of $4.3 bn, a 24% increase on the previous record in 2013.

While Blackstone will no doubt continue to dominate the European opportunistic real estate fund arena given its strong track record, home-grown players are also well and truly back on the capital-raising trail.

European-focused fundraising improved ‘dramatically’ in 2014, according to Preqin’s 2015 Global Real Estate Report. Moreover, most investors are planning to commit more capital to new funds in 2015 than in 2014, and also to increase their target allocations for the long term. As investors move up the risk curve in search of higher yield, demand for value-add and opportunistic strategies will grow. Research from Preqin shows that the volume of capital raised for Europe-focused real estate funds with a value-add strategy more than trebled in 2014 compared to the previous year and more are on the way.

At Mipim, the PropertyEU team learned about a spate of new vehicles that are hitting the market in the coming weeks and months. The biggest so far is a new €950 mln fund that Tristan Capital Partners is launching to invest in value-add opportunities across Europe. European Property Investors Special Opportunities 4 will target net returns of 15% and invest across all sectors in Europe with the first close expected by the end of the second quarter.

Committed ahead of schedule
Tristan’s new vehicle comes just over a year after the London-based fund manager capped the final equity raise on its EPISO 3 value-add/opportunistic fund at €950 mln, exceeding its original capital target by 25%. At the time, the company said it had almost €500 mln of unfilled demand for the fund. Possibly even more remarkable is the fact that EPISO 3 is already 85% committed and is expected to run out of capital by the end of Q2.That is one year ahead of schedule, the company’s CEO Ric Lewis told PropertyEU.

Other boutique fund managers active in the value-add space in Europe include Patron Capital, which is eyeing a €1.1 bn fund and Rockspring Property Investment Managers which is targeting €1 bn. London-based Benson Elliot is also believed to be raising capital for its fourth value-add diversified European fund while UK peer Internos Global Investors is mulling a €500 mln pan-European vehicle.

Institutional players affiliated to European insurers or financial services companies are targeting the value-add segment as well - witness AXA Real Estate which has already raised €235 mln for a pan-European value-add strategy.

More debt funds on the way
And if that were not enough, the debt space is also buzzing with activity. This week, PropertyEU revealed that AEW Europe is on the brink of launching a €3 bn pan-European debt fund, while TH Real Estate is also believed to be on the verge of launching its first debt fund. The size of the fund is unknown, but with players like AXA Real Estate, Hermes, Standard Life Investments and Aviva already actively raising new chunky debt vehicles with target volumes ranging between €500 mln and €2.5 bn, Preqin's European figure for last year - €7.4 bn - is certain to be surpassed.

Elephant and snake
For both debt funds and value-add vehicles, there is still plenty of work to do, according to Tristan’s Lewis. Comparing the flow of distressed loans and assets in the European real estate market to ‘a huge elephant trapped in a snake’, Lewis said the elephant had moved about a third of the way through. ‘There’s still a lot to come out of the snake,’ he said.

At the same time another animal - the bull - has been let loose on the European property market. At €3.4 bn, Preqin’s figure for new European value-add funds in 2014 is still far off from the peak of €9.2 bn raised in 2007, but it is close to the pre-boom volume in 2006 of €3.6 bn and further growth is in store. Indeed, the question is no longer whether we are in a bull market but how long it will last as the title of Colliers' International recently published global capital flows report - 'How long will the bull property market last?' - makes eminently clear. While the report provides plenty of evidence that could extend the bull run – ample availability of equity and debt, low interest rates and limited new development – it readily concedes that the list of possible ‘trigger’ events to cause it to end are too long to list.

Which raises the question, have lessons been learned? To be sure, many of the excesses that fuelled the previous boom and triggered its ignominious end have been tackled. Overleveraging seems to be a thing of the past and fund management fees have been slashed since the crisis. At the same time, fund managers who were responsible for some of the worst losses at companies like Morgan Stanley and Goldman Sachs are reappearing under a different label. As one source put it, ‘there is no institutional memory’.

As a listed company, Blackstone is required to provide information on fee earnings and the performance of its business. And some investors may be quite happy for Schwarzman and the other bright sparks in the business to earn astronomical figures as long as their own profits are secured. But the return of such excessive – some would say obscene – earnings should be sending alarm bells off in an industry where most firms are not required to publicly reveal details about their performance and lack of transparency remains a fact of life.

In the post-Lehman era, investors are demanding – and getting - more skin in the game. But as Tristan’s Lewis put it, the European real estate industry is ‘doomed to repeat the mistakes of the past’ without more transparency on fund performance. To return to the animal kingdom for one last time, that is the elephant in the room.

Judi Seebus
Editor in chief