The importance investors place on fund manager experience and track record has grown in recent years, with Preqin’s Investor Outlook: Real Estate H1 2014 revealing that the largest proportion of investors surveyed (31%) viewed the length of a manager’s track record as the most important factor to assess when seeking new fund managers. Past performance was the second most commonly-stated factor, with 25% of respondents viewing this as the most important issue to assess regarding fund manager selection.
The decreasing investor appetite for first-time funds emphasizes this trend, with only 17% of investors on Preqin’s Real Estate Online service willing to invest in first-time funds as of December 2013, compared to 41% in December 2009. The vast majority of investors (63%) will not invest in first-time funds as of June 2014.
With investors increasingly drawn to more experienced fund managers, capital is becoming more concentrated among managers which have prior fundraising experience. The top 20 managers by the amount of capital raised through closed-end private real estate funds in the last five years account for 38% of aggregate capital raised since 2009, despite only accounting for 7% of the number of funds raised in this time. However, there are significant disparities regarding the amount of capital these 20 managers have raised in this time period; unsurprisingly, Blackstone Group heads the list, having raised a considerable $34.6bn in capital through private real estate funds since 2009. A large proportion of this is accounted for by Blackstone Real Estate Partners Europe VII, which closed in October 2012 having raised a considerable $13.3bn. Blackstone Group, Lone Star Funds and Brookfield Asset Management combined account for $72.7bn of capital raised through closed-end private real estate funds since 2009, a greater amount than was raised by the remaining 17 managers and accounting for 21% of total capital raised by all funds closed in this time period.
The proportion of funds raised by the top 20 managers reaching or achieving their target sizes increased from 2012 to 2013, from 71% to 92%, with a considerable 67% of funds raised by these managers closing above target in 2013. Although the proportion of funds raised by other managers which reached or exceeded their target sizes also increased over this time period, from 44% to 59%, the top 20 managers appear more able to attract significant amounts of investor capital and close on or above target.
With experienced managers attracting increasing amounts of investor capital, these firms have considerable amounts of uncalled investor capital (dry powder) available for investment in real estate. As of May 2014, the top 20 managers have approximately $69bn in dry powder, representing 32% of the global total, with all other managers having a total of approximately $146bn in uncalled capital commitments. As a consequence, it is likely that the top 20 managers will play a large role in future private real estate investment activity as they look to put their available capital to work.