Closed-end nature of PE realty blamed for fall in investments

The closed-end nature of private equity real estate funds stopped many from investing in 2009, according to a report.

"Liquidity issues were worsened by the falling distributions made by many private equity real estate managers, meaning that capital that was perhaps earmarked for re-investment was no longer available.

"Moreover, with so much dry powder available but unspent and with so many commitments made but uncalled, many investors saw little point in investing in 2009," said Preqin, a London-based research and consultancy firm, said in its real estate investor survey titled, "Looking Back and Moving Forwards".

Despite the gloom, many investors did not lose confidence in the long-term benefits of investing in private equity real estate; they simply were not investing in 2009.

Many private equity real estate investors, including some rather prominent institutions, decided to delay investing in the asset class until the markets had settled. Some delayed until the fourth quarter of 2009, whilst others suspended private equity real estate programs until 2010 or later.

The past 18 months has been difficult for private equity real estate investors and fund managers alike, said the report. Fund managers struggled to secure commitments for their funds and their overall fundraising fell significantly, as a direct consequence of an investor universe that was committing less capital to the industry than in recent years.

"Some investors reduced their usual capital outlay to the industry, while others temporarily halted investments altogether. Although the industry has continued to garner some commitments, investors are being more cautious when allocating fresh capital to the market," said the report.

In the fourth quarter of 2009, Preqin carried out a survey of 90 institutional private equity real estate investors to find out their attitudes towards private equity real estate.

 

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