18 funds reached a final close in Q2 2011, raising an aggregate $11.2 billion. This represents an increase on the $8.9 billion that was raised in Q1 2011, and the $7.1 billion that was garnered in Q4 2010. Despite this, fundraising does remain challenging and is still well below the levels seen in 2006-2007, with the market being overcrowded with managers seeking capital from investors.
Funds with a primary focus on North America raised the most capital, with 10 such funds receiving aggregate commitments of $8.6bn. Five Asia and Rest of World-focused funds raised $1.4 billion, while three Europe-focused funds raised $1.2 billion. Lone Star Funds held a final close on $5.5 billion for Lone Star Real Estate Fund II, Och-Ziff Real Estate Advisors raised $840 million for Och-Ziff Real Estate Fund II and Pramerica Real Estate Investors raised £492 million for Pramerica Real Estate Capital I. In addition to funds holding final closes, 30 held interim closes in the quarter, raising an aggregate $2.5bn towards their overall fundraising targets.
There are currently 435 private equity real estate funds in market, targeting aggregate commitments of $138 billion from investors. This signifies a small decline from April 2011, when 439 funds were targeting $160 billion, but the market remains very overcrowded. Funds closed in H1 2011 spent an average of 15.5 months in market, a small decrease from the 16.8 months for funds closed in 2010 and a significant increase on the average of 9.1 months that funds closed in 2007 spent in market.
The results from Q2 will give some encouragement to fund managers that are currently marketing their vehicles. That Lone Star Funds, which closed its Lone Star Real Estate Fund II with commitments of $5.5 billion, was able to raise the fifth largest private equity real estate fund of all time highlights that firms can still raise substantial amounts of capital from institutional investors, despite the depressed nature of the current environment. Several funds to close in the quarter did so above target, again indicating that fundraising success is possible if a fund is positioned and marketed correctly.
As deal levels increase and as a result more distributions occur, investors will have more capital available to make new commitments – which in turn is likely to further improve fundraising. This will be a gradual improvement, and with the market remaining extremely saturated with managers, many firms will still be facing long periods in market, while others will be forced to abandon their fundraising efforts altogether.