Private equity real estate fund performance: in the red, but for how long?

by Andrew Moylan

  • 06 Nov 2009
  • RE

Preqin analysed private equity real estate returns to 31st March 2009 in order to provide an independent and unbiased description of the industry’s performance. Returns are deep in the red over the 12-month period to March 2009. The asset class only performed marginally worse than the public markets, however, with returns of -40.5% compared with -38.1% for Standard & Poor’s 500 index, although March 2009 did mark the bottom for public indices. Furthermore, private equity real estate horizon IRRs have outperformed the public markets over the three- and five-year periods. Over the five-year period, private equity real estate has outperformed the S&P 500 index by 35.8 percentage points.

Private equity real estate has also outperformed public real estate markets. The Wilshire REIT index returned -60.7% in the 12 months to March 2009 and the difference in performance remains pronounced over three- and five-year periods, with private equity real estate returns exceeding REIT returns by 40.5 percentage points over five years.

Real estate fund managers have been writing down the value of their investments in every quarter since Q4 2007, and Q4 2008 saw the most significant percentage change in net asset value, with an average decline of 15.7%. There are some indications, however, that the asset class may be picking up. Whilst returns are still extremely poor, short-term return figures suggest that the worst may be over. Q1 2009 saw an average 8% fall in net asset value which, although still a significant decline, was not as bad as that from the fourth quarter of 2008.

For more detailed analysis of private equity real estate fund performance, please see November’s edition of Real Estate Spotlight, our free monthly newsletter containing exclusive research and data taken from our industry-leading online databases and publications.

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