Funds from realty PEs dip 72%

Money by realty-focused private equity (PE) funds declined to over a four-year-low level of $10.3 billion in April-June 2009 as institutional investors remained hesitant in committing capital.

According to a report by global research firm Preqin, private equity real estate funds are still struggling to raise capital in the current economic environment.

In the April-June quarter, 21 real estate funds made aggregate commitments of $10.3 billion, down 72.16 per cent from$ 37 billion in the year-ago period.

“This represents the lowest fund raising quarter for PE real estate funds since Q4 2004, when the funds raised an aggregate $10 billion,” Preqin said.

Cautious move
The report said that investors have turned cautious and are now looking at more established markets.

“During this time of economic instability, investors are especially cautious when making new commitments, and are therefore in many cases looking towards more established markets, rather than emerging markets, which are perceived as being higher risk,” Preqin said.

Although money raising by the private equity real estate industry has declined sharply, the fall is particularly noticeable for funds targeting Asia.

“Asia and Rest of World funds, which were responsible for 25 per cent of the aggregate capital raised in 2008, have accounted for just nine per cent so far in 2009,” it said.

Anticipating slump in demand amid the global economic downturn, many investors have reviewed their investment portfolios and reconsider their allocations to PE real estate.

However, the level of activity will pick up dramatically in the coming six months as investors remain committed to achieving a globally diversified portfolio, it said.

“The next three months may still be a struggle for the asset class and we will probably see similar levels of fund raising in Q3 to those we saw in the first half of 2009.

“It is clear that investors are choosing to delay making new investments until the long-term economic outlook becomes clearer, but many predict that this will happen at the end of the year,” it said.

The report also said that following resumption of fund raising in the real estate asset class in the fourth quarter of 2009, next year would turn out to be the biggest fund raising year in long term.

Road ahead
“There is a desire among investors to invest in the asset class but many are simply biding their time. Confidence in the industry is returning with the possibility that 2010 will be a great fund raising vintage in the long term,” added the survey report.

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