Private Equity Real Estate Fund Performance

by Bronwyn Williams

  • 20 Nov 2009
  • RE

Private equity real estate funds have been the most severely affected of all private equity fund types following the subprime mortgage crisis and ensuing economic downturn. As such, the most recent fund vintages show poor performance, with vintage 2006 posting a median IRR of just 1%. However, older vintages show stronger performance, with IRRs in the range of 10-22%, steadily rising from vintage 1997 and peaking in 2001. Examining the top and bottom quartile funds shows that 2001 was an exceptional vintage year, with an IRR of more than 15% required just to be ranked higher than a bottom quartile fund, and almost double that required to be considered to be top quartile.

One approximation for assessing the riskiness of a particular fund strategy is to consider the spread of variations of individual fund IRRs from their respective median benchmarks. More than half of all real estate funds are within plus or minus 5% of their median benchmarks, and 95% of funds fall within the -20% to +19.9% range. Of the remaining 5% of funds, 2% underperform the median benchmark by more than 20%, while 3% outperform the median benchmark by 20% or more.

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