The entire alternative assets industry is wondering whether – or when – we will see an equity market downturn. How will the industry position itself strategically, and how will different asset classes prepare for the turn? It is interesting to see that the private real estate industry does not seem to be making significant behavioural changes in anticipation of this potential correction; fund managers are continuing to bring funds to market, and investors’ investment patterns are materially unchanged from recent trends.
Instead, the market remains heavily influenced by dual trends in the form of a record amount of available capital and an unprecedented level of competition for deals. These two factors have upheld high asset pricing, which is having a noticeable effect on the market. While investors most commonly target core investments, fundraising for core vehicles has flattened, with just five such funds closed in Q1 2019. This is likely due to the pressure on core assets’ pricing – not just from fund managers with available capital, but from investors looking to make direct investments which will likely target core properties. In fact, the same investors once committing to core funds are now likely to compete with them for deals.
With fund managers still bringing funds to market, the overall momentum of the industry is strong. The number of funds closed in Q1 2019 is dramatically lower than in Q4 2018, but capital totals from Q4 remain high relative to historical levels. Investors retain appetite for the asset class, even as they look to commit to fewer and more experienced fund managers.
For more in-depth analysis on fundraising, funds currently in market, investors and more, download your copy of the Preqin Quarterly Update: Real Estate, Q1 2019.
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