New research from alternative assets information specialists Preqin has found that smaller private real estate funds of $500 mln or less have been consistently outperforming larger funds, tracked over both 'vintage' years and periods including the global financial crisis.
'The private real estate industry has experienced increased capital concentration over the past few years, as investors have committed an increasing amount of capital to fewer larger funds,' commented Oliver Senchal, Preqin's head of real estate products.
'On a purely performance basis, however, smaller funds have higher average returns across most vintage years, and outperform larger and mid-size funds across short- and long-term horizons.'
Four European vehicles appeared in Preqin's top ten global ranking of most consistent performing closed-end private real estate fund managers. In fact, Denmark's NREP took top position globally. The other European vehicles were Profi Förvaltning of Stockholm, Sweden; Auratum Real Estate, of Turku, Finland; and Aeriance Investments, Luxembourg.
Outperforming
According to the survey data, smaller private real estate funds with vintages 2005-2014 posted a median return of 10.9%. This surpassed both mid-size funds, which saw a median net IRR of 9.1%, and large funds, which had a median net IRR of 6.9%.
Furthermore, in the year to March 2017, smaller funds have an average return of 11.8%, while mid-size and larger vehicles each generate a one-year horizon IRR of 9.2%.
Over the 10-year horizon, which covers the global financial crisis, smaller funds generated positive performance while mid-size funds saw a horizon IRR of -1.9% and larger funds saw -0.4%.
'With concerns of an upcoming downturn in the real estate market, it may spell a reversal in fortune for smaller funds which managed to demonstrate stronger performance in challenging market conditions,' Senchal concluded.
