According to the research LPs still favour private equity real estate although have become more conservative in their approach to investing. Of those surveyed on their plans for the next twelve months, a total of 54% of investors intended to maintain their current exposure to private equity real estate, with 46% of investors intending to increase their allocations. Not a single investor surveyed intended to decrease their allocation in the near future.
More specifically, investors were questioned over whether the credit crunch had affected their strategy in any way. The results show that on the whole the credit crunch has not had a major effect, with 88% reporting no change to strategy and fund preference, and only 12% saying that it had altered their strategy.
There were several interesting responses from investors. Among those reporting no change in strategy, there were a number that stated that although their plans would remain the same, they would however be exercising a higher degree of caution when making new commitments, and taking more time when considering new opportunities. A prominent US insurance company said that they would be “adopting a slightly more conservative approach because of the credit crunch.”
Amongst those that reported a change in strategy, this was universally to focus on different regions or fund types. Investors are continuing to invest in the asset class, but in some cases are looking to invest in different funds and regions, with many actively seeking to take advantage of the market conditions that the credit crunch has created.
Increased investor caution in the early stages of 2008 has been reflected in the amount of funds reaching a final close. As of February 2008, 12 private equity real estate funds reach a final close raising an aggregate $6.3bn. At this stage last year 20 private equity real estate funds had reached a final close raising an aggregate $11.2bn – almost twice as much. However, it is expected that as the year progresses fundraising will pick up. Of the 276 real estate funds currently in market a total of 83 vehicles seeking an aggregate $55bn have already held an interim close, and are therefore extremely likely to be holding a final close in the coming few months.