41% of all US public pension funds that invest in private equity real estate have invested with at least one of the top 10 firms. Blackstone Group, Morgan Stanley Real Estate and LaSalle Investment Management have each secured commitments from over 35 different US public pension funds. Canada’s Brookfield Asset Management is not known to have any US public pension fund investors, though it counts a number of sovereign wealth funds among its clients.
10 of the most significant US public pension funds that invest in private real estate vehicles have committed to funds managed by at least three of the top 10 managers. The $140 billion New York State Common Retirement Fund has invested with six of the top 10 firms, including four vehicles managed by Blackstone Group. The $58.8 billion Washington State Investment Board has invested in seven funds raised by Fortress Investment Group and seven of Lone Star Funds’ vehicles.
CalSTRS has invested in six funds managed by Beacon Capital Partners, nine operated by Fortress Investment Group, five raised by Lone Star Funds, six of Morgan Stanley Real Estate’s vehicles and one of Colony Capital’s funds. Of the top 10 firms that CalSTRS has invested with, only Colony Capital and Lone Star Funds had funds in market in May 2011. However, the pension fund had yet to commit to any of these vehicles.
Six of the top 10 managers had funds on the road in May 2011, accounting for 12 vehicles seeking an aggregate $28.3 billion. Only four of these funds had held at least one interim close, suggesting that enthusiasm for these firms has waned following the financial crisis. In the current climate, many institutions are likely to seek smaller, more specialised vehicles alongside fewer investors, and prefer funds managed by smaller teams with which they can work closely. This is one of the reasons club funds and joint ventures are being favoured by an increasing number of investors. Certain institutions interviewed by Preqin have indicated that they will no longer invest in large firms or mega-funds, as they want their managers to be more investor-oriented, potentially a difficult task for funds that have a large number of limited partners.
Carlyle Group and LaSalle Investment Management were two of the 10 largest firms with funds in market in May 2011. Carlyle Realty Partners VI was targeting $2 billion in equity commitments, and held a second close in December 2010 on $374 million. LaSalle UK Special Situations Real Estate Fund held a first close in February 2010, raising just over half of its £100 million target size. This suggests that appetite amongst investors for vehicles managed by the largest managers can remain, though much will depend on fund performance and how well the firms navigate the difficult and ever-changing market.