Performance for Europe-focused private equity real estate funds of 2005, 2006 and 2007 vintage years has been particularly affected by the economic downturn. Many of these funds would have bought assets at peak prices and their portfolios will have been subject to significant declines in value. The called-up to committed capital figures for 2009 and 2010 vintages also show that many managers of European real estate funds have remained on the sidelines and not deployed their capital. The median called-up figure for 2009 vintage funds is 11.6% of commitments, while the figure for 2010 vintage funds is just 5.8%.
The net multiple is used by investors to determine how much they have gained, or are likely to gain, on an investment. It does not take into consideration the timings of call-ups and distributions, but does provide a good indication of fund performance. European funds of 2003 vintage have performed strongly, with a median multiple of1.65x. Funds of subsequent vintage years have been affected by the economic downturn; however, with the median net multiple dropping below 1.0 for all vintage years between 2004 and 2008. Although there is not a substantial difference between the median and weighted net multiples, the median multiple exceeds the weighted multiple in five of the eight vintage years between 2003 and 2010. This suggests that smaller real estate funds have tended to outperform larger vehicles.
When the median IRRs of Europe- and North America-focused real estate funds by vintage year are compared we see that Europe-focused funds of 2002 and 2003 vintage years are not currently producing returns as high as North American funds. The median IRR figure for 2002 vintage North American funds is 14.7% compared with 7.6% for European funds. For 2004 to 2007 vintages, however, European fund performance has not suffered to the same extent as North American fund performance. The median IRR for North America focused funds is negative for 2005 to 2007 vintage years. In contrast, European funds are narrowly in positive territory. While data for European funds of 2008 vintage is somewhat limited, the importance of selecting managers that are able to navigate the current real estate markets is clear. The best performing real estate fund currently has an IRR of 9.7%, while the worst has a -53.5% IRR.