Over the years, a trend has emerged: institutional investors are committing larger sums of capital to fewer private real estate funds. Arising from concerns over deal flow, a firm’s ability to demonstrate a strong track record as well as source deals ranks highly among LPs. As the real estate industry continues to grow, so does the level of competition for investor capital, and fund managers are having to find ways to overcome new challenges, with some seeking to take advantage of the strategic and financial benefits of a merger.
In June 2017, Preqin interviewed a number of real estate fund managers to ascertain their outlook on the real estate industry in 2017 and beyond. Eighty-seven percent of surveyed GPs expect to see consolidation within the fund management industry by 2020, as shown in the chart above, 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 – one of the largest real estate firms in the world with approximately $99bn in AUM. More recently, Aberdeen Asset Management and Standard Life merged to form Standard Life Aberdeen, which was completed in August 2017. These trends could prelude the emergence of a two-tiered fundraising market, where the largest and most successful fund managers are able to quickly raise ever larger funds, and the majority of less established firms fiercely compete for the remainder of investor capital.