GLOBAL - Capital raised by private equity real estate fund managers has fallen to its lowest level since 2004, according to data providers Preqin.

The company found that only $7.3bn (€5.6bn) of equity was raised by 20 funds in the second quarter of this year, only slightly higher than the $6.1bn raised by 30 funds in the third quarter to 2004.

Preqin attributed the findings to an extremely competitive fundraising environment for managers of closed-end, private equity-style vehicles.

It added that any significant pick-up in fundraising was unlikely to occur any time soon, as fund managers' expectations for near-term capital raising was well below what it was 18 months ago.

The aggregate target of private equity real estate funds in market has fallen significantly from $228m in the first quarter of 2009 to $134m in the third quarter of 2010.

Preqin noted that many fund managers had reduced their fundraising targets, while others had been forced to abandon their efforts altogether.

Those funds that did manage to close in 2010 spent an average of 19.7 months on the road raising capital, almost twice as long as fund managers that closed funds in 2006.

Preqin said the time it took fund managers to close funds reflected the competitiveness within the fundraising market.

Andrew Moylan, real estate data manager at Preqin, said: "The low fundraising total for Q2 2010 confirms private equity real estate fundraising remains extremely competitive, with fund managers taking over a year and a half to close their funds.

"While the aggregate target of funds in market has fallen, there is still a large number of funds on the road seeking commitments from an investor community that remains far less active than it was a few years ago."

Moylan said most institutions planned to increase their activity in the second half of 2010, but that many had significant amounts of capital committed to existing funds and were receiving very few distributions to re-invest.

He said: "With real estate transactions increasing, more investors will receive distributions, which will in turn lead to increased activity in the fundraising market.

"This will take time, however, and it seems likely there will be several more quarters of slow fundraising to come."
 

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