Data published in Preqin’s Special Report: Asian Real Estate, March 2014 reveals that private real estate fundraising in Asia has shown positive signs of growth over the last three years, with the aggregate capital raised almost doubling from $5.4bn in 2011 to $10.4bn in 2013. However, there are fluctuations in the number of funds reaching a final close, with this declining considerably from 33 in 2012 to 21 in 2013. With the aggregate capital raised over this time period increasing, this indicates that capital is becoming increasingly concentrated among a smaller selection of fund managers than in previous years, echoing the trend seen in private real estate fundraising elsewhere.
The relatively underdeveloped real estate market in some Asian countries may result in a relatively low supply of core assets when compared to more mature markets. As such, the majority of funds closed from 2013 to February 2014 are primarily focused on higher-risk/return profile strategies, with 15 opportunistic funds closed raising an aggregate $6.1bn and four value added funds raising $4.1bn over this time period. Only three primarily core or core-plus funds closed in January 2013-February 2014, raising $0.3bn.
Further improvement in the fundraising market is also demonstrated by the fact that funds closed in more recent years have had greater success reaching or exceeding their target size. Half of Asia-focused funds closed in 2012 or 2013 reached or exceeded their target size, compared to 40% of funds closed in 2010 and 2011.
Preqin data also shows that domestic fund managers have accounted for a sizeable proportion of capital raised between 2010 and 2013. Many Asia-headquartered fund managers now have long track records and so are able to raise more capital for more recent offerings, and investors may also be looking for firms with a strong presence on the ground in the markets they are investing in.
The median net IRRs of Asia-focused private real estate funds have improved considerably for funds of more recent vintages. Funds of vintage years 2009 to 2010 have generated median net IRRs of 15.8% and 20.3% respectively, compared to 7% and 3.7% for 2007 and 2008 vintage funds respectively. The median IRRs of Asia-focused funds exceed that of North American offerings for vintage years 2005, 2006, 2007 and 2010.
The assets under management of Asia-focused private real estate funds have also increased in recent years, standing at $105bn as of June 2013, up from $86bn in December 2010. This is largely the result of fund managers putting capital to work and improving portfolio valuations, as the amount of capital held as dry powder saw a steady decline from $38bn in December 2009 to $21bn in December 2012. The upturn in fundraising in 2013 has seen dry powder increase over the past year however, with this standing at $28bn as of February 2014.