The increasingly challenging fundraising environment for emerging managers (defined by Preqin as first- or second-time fund managers) raising private real estate funds in recent years is well documented, with many investors choosing instead to place capital with more experienced managers with a proven track record in the space. Fundraising for emerging managers has declined over the last three years consecutively, decreasing from 98 funds raising an aggregate $20.6bn in 2011 to 63 funds raising a total of $14.3bn in 2013.
The proportion of aggregate capital raised by all private real estate funds accounted for by emerging managers has also declined over this time period, from 34% of total capital raised in 2011 to only 18% in 2013. Conversely, managers which have raised five or more private real estate funds have accounted for an increasing proportion of aggregate capital over this time period, from 53% for funds closed in 2011 to 63% in 2013, further demonstrating that investor capital is becoming increasingly concentrated among a handful of more experienced managers.
Furthermore, the majority of funds abandoned or placed on hold from 2010 to 2013 were those raised by emerging fund managers. For funds placed on hold or abandoned in 2013, 64% were emerging manager funds, with only 14% accounted for by managers which have raised eight funds or more previously.
Regionally, North America has accounted for a growing proportion of emerging manager capital raised since 2010, increasing from 39% of capital raised in 2010 to a significant 67% for emerging manager funds closed in 2013. Europe-focused emerging manager funds increased from accounting for only 12% of capital raised by funds closed in 2012 to 23% of capital for funds closed in 2013; however, this represents a decrease from the 29% and 27% of aggregate capital accounted for by Europe-focused emerging manager funds in 2010 and 2011 respectively. Asia-focused funds decreased their proportional representation considerably from 2012 to 2013, declining from 21% of aggregate emerging manager capital raised in 2012 to only 5% in 2013.
Higher-risk strategies such as opportunistic and value added funds account for the majority (63%) of funds managed by new firms that closed in 2013, accounting for 58% of capital raised by emerging managers for funds closed throughout the year. Only 5% of emerging manager funds closed in 2013 followed a core strategy, representing only 2% of the aggregate capital raised. Interestingly, funds raised by emerging managers focusing on debt as a primary strategy have grown in prominence from 2012 to 2013, accounting for 21% of capital raised by first- or second-time managers in 2013 compared to only 5% of capital raised in 2012.