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Impact Investing

IPE special report May 2018

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Institutional commitments to infrastructure, PE real estate drop in Q3

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  • Institutional commitments to infrastructure, PE real estate drop in Q3

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GLOBAL - Fundraising in both the infrastructure and private equity real estate sectors recorded an important drop in the third quarter this year, with the two markets falling by 44% and 16%, respectively, from the second quarter.

But the figures are set to improve in the coming months as appetite from institutional investors remain high, two new reports have found.

According to Preqin data, the infrastructure fundraising market has fallen in the third quarter, with two vehicles reaching a final close totalling $1.6bn (€1.2bn), while the previous quarter saw seven funds raising $2.9bn.

Meanwhile, the private equity real estate market saw 17 funds reaching a final close over the period, with $11bn raised in total, compared with the $13.1bn of capital secured in the second quarter by 27 vehicles.

However, in its two reports, Preqin pointed out that momentum in both markets remained, with several funds expected to reach a final close within the next months.

Preqin also noted that, in the infrastructure sector, 30 funds reached an interim close in the first three quarters of 2011, raising $11.4bn toward their fundraising targets.

As for the private equity real estate sector, the level of competition remains intense, however, with more than 430 funds currently in the market.

While several firms have closed funds on or above target in Q3, many others have been forced to delay anticipated closings.

In spite of the fact that 16% of institutional investors have yet to decide whether they will be active in the private equity real estate space in the coming year, in the medium and longer term, very few of them are abandoning the asset class.

A previous survey conducted by Preqin shows that institutional investors are showing a strong appetite for infrastructure, with almost three-quarters seeking to make further investments in the asset class within the next 12 months.

The figures in both sectors are expected to increase over the last quarter of the year, as fund managers continue to attract fresh capital from investors.

While investors see "good opportunities in the market, many are not ready to commit", which means fundraising environment is going to be "tough" going forward, said Andrew Moylan, manager of real estate data at Preqin.

"Fund managers are going to struggle raising funds," he said. "The lack of investor appetite is exacerbating the situation - it is a competitive market."

The real estate recovery has been slower than other asset classes, Moylan added.

While there are a "lot of opportunities to invest in real estate, they may have been strung by past performance and be content to remain on the sidelines", he said.

At the same time, he said, many investors had  "committed capital to funds in the past few years, which has not yet been called-up", so they are "not compelled to make new commitments".

Moylan said investors were looking at more opportunities compared with 2009 and that fundraising was "slowly improving, but it is a gradual improvement".

"Half of investors not committing is fairly high," he said. "Fundraising is not going to suddenly rebound because many are not ready to make new commitments. Investor appetite for the private real estate asset class remains mixed - that is the key thing."

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