Large opportunistic funds 'throw in the towel': Clerestory

Investment managers seeking to raise over $1 bn in equity capital for 'large-cap' opportunistic real estate fund strategies virtually disappeared off the map in the first half of 2010, according to the latest research from Clerestory Capital. Only one large-cap fund was represented among the 31 new non-listed funds aiming to attract $12.6 bn (about EUR 9.4 bn) in this period.

Joanne Douvas, co-founder and managing principal at Clerestory said: 'The research confirms the strong trend - identified at the start of the year - that opportunistic real estate funds are scaling down in size. There also appears to be significant churn in managers that come to the market but are not successful.'

However, managers with proven track records and the ability to execute are raising capital, as evidenced by the funds that have reached a final close during the first half of 2010,' she added.

Overall, the total volume of capital raising targeted in opportunistic strategies has declined sharply this year from the second half of 2009. Previously, a total of 91 funds were seeking to raise $72 bn of equity versus 80 funds seeking to raise $44 bn of equity today. This decline was primarily due to a decrease in capital being sought by large-cap funds and a number of funds that were pulled from the market.

Clerestory defines small-cap opportunistic funds as those raising less than $1 bn of equity and large-cap opportunistic funds as those raising more than $1 bn of equity commitments.

Of the 30 new small-cap opportunistic funds seeking $11.3 bn, and the single new large-cap fund seeking $1.5 bn, over half (18 funds) are in the Americas. These funds are trying to raise $7.6 bn in equity.

Tommy Brown, co-founder and managing principal at Clerestory said: 'We continue to characterise the US and European real estate investment markets as either 'slow' or 'stuck'. For the foreseeable future, they appear to be locked into the 'Great Muddle' until equity and debt holders are willing to recognise their losses from the slump in values during the financial crisis, these markets will continue to muddle along.'