First-Time Real Estate Fund Managers, How Do They Compare? – August 2014

by Jack Jackson

  • 22 Aug 2014
  • RE

First-time real estate fund managers can find fundraising very difficult in the current marketplace. Not only are they competing with the big names in the business, they also have to convince investors that they will deliver the returns. So how does their fundraising data stack up against managers that have raised more than one fund?

By July 2014, $5bn in equity was raised by 10 first-time real estate funds, making 2014 one of the most successful years to date for first-time fund managers. This is partly due to the closing of Kildare European Partners I in May, securing $2bn. By comparison, the whole of 2013 saw just $5.6bn raised by 39 first-time funds, and 2012 saw $5.8bn garnered by 37 funds. Based on these figures, 2014 looks set to surpass the levels seen in 2008 for first-time funds, when 36 first-time vehicles raised a record $9.3bn.

However, comparing the current status of funds launched in 2012 reveals a different side to the story. First-time funds launched in 2012 are almost twice as likely to have been abandoned than other funds, with 21% having done so compared to 9% of funds raised by more experienced managers. Just 44% of first-time funds launched in 2012 have reached a final close, compared with 56% of all other funds. Interestingly, the same percentage of first-time funds and all other funds are still on the road, with 35% in market, although a considerable 24% of funds raised by more experienced managers have achieved an interim close, compared to just 15% of funds raised by first-time managers.

First-time managers are much more likely to fall short of their equity targets than those that have raised at least two funds, and significantly less likely to exceed their fundraising goals. When looking at funds closed since 2013, 16% of first-time funds closed with under 50% of the capital they were seeking, compared to just 5% of all other funds closed. Regarding those funds that reached or exceeded their target sizes, just 30% of first-time funds closed on more than 100% of their target, compared with 51% of managers that have raised more than one fund. As a result, first-time managers have found attracting investor capital particularly challenging in recent years, and although 2014 looks more promising, managers entering the market for the first time are likely to continue to find difficult to attract institutional capital, and only those with the most compelling offerings are likely to succeed.

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