Fund raising soars to dizzy new heights

Real estate fund raising is being taken to dizzy new heights as multi-billion dollar funds become the name of the game.

Such funds have gone from being an anomaly to a force to be reckoned with. Last year, 51 Europe-focused private equity or private capital funds closed that raised in excess of $1 bn each, according to Preqin. Combined, these funds raised an aggregate total of €130 bn, Preqin said.

‘Investors are increasingly looking to experienced fund managers with a proven track record to entrust their capital to and, consequently, emerging managers have to work harder to attract the attentions of an increasingly sophisticated investor network,’ said Christopher Elvin, head of private equity products at Preqin. ‘As such, the average fund size has seen gradual and sustained increases since the end of the global financial crisis…healthy fundraising has continued the trend of increased investor capital concentrated among fewer fund managers.’

David Hutchings, head of EMEA investment strategy at C&W agrees: ‘Success breeds success,’ he said. ‘Fund investors recognize the managers which have performed well and gravitate towards them. If you go back a few years, funds raising €250 mln seemed the norm and raising €1 bn was incredible. This has changed, however, and it has become more efficient to raise bigger and bigger funds.’

US private equity investor Lone Star is reportedly aiming to raise up to $5 bn for its Real Estate Fund V, of which around 80% is expected to be invested in Europe. The remaining capital will be invested in the Americas and in the Asia Pac region, according to someone familiar with the fund. In addition, the fund has a target net annual return of 20%, according to those who track the market. Lone Star’s previous fund, which closed in April 2015, raised $5.8 bn. Lone Star declined to comment.

Teachers’ Retirement System of the State of Illinois (TRS) in the US committed $300 mln in February to Lone Star’s Real Estate Fund V, a spokesman told PropertyEU. ‘TRS has an existing relationship with Lone Star and the system’s Board of Trustees decided that an investment in Fund V would fit well at this time within the TRS strategy to increase real estate commitments during this fiscal year,’ he said.

In the fiscal year to June, TRS is ‘on track’ to commit $850 mln in real estate investments, he added. TRS also committed $300 mln to Lone Star Real Estate Fund IV in October 2015 as well as $150 mln to Lone Star Real Estate Fund III in May 2014.

However, Lone Star’s latest fund is dwarfed by some of last year’s mega-funds, including Blackstone Capital Partners VII, a buyout fund, which raised $18 bn, according to Preqin. Hot on its heels was real estate fund Blackstone Real Estate Partners VIII, at $15.78 bn. Warburg Pincus Private Equity XII, a balanced fund, raised $12 bn, according to Preqin.

For funds with a lot of ‘dry powder’ to invest, this year could be a bumper year, according to Hutchings: ‘We could see more stock come to market this year, partly as a result of the starting gun for interest rates being fired but also because there is more profit taking as some investors switch allocation strategy and others move up the risk curve and sell on some developments. There will be a mixture of quality in the stock coming to market but that’s the new ingredient for this year: more choice. There will also be more equity coming from different sources into Europe such as institutional players from China, Japan, Taiwan and South Korea as well as more global high net worth individuals looking at diversification into the region.’