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2012 was the second worst year for real estate private equity funds since the outbreak of the financial crisis in 2008, according to the Swisslake 2012 Market Report.
Although the number of funds slightly increased from 245 in 2011 to 248 in 2012, the target equity volume significantly dropped from USD121.3bn in 2011 to USD93.1bn in this year (- 23.3 per cent).
The categories that contributed most to this decline are Asian and global/ROW funds. With 33 funds and a target equity volume of USD11.9bn the number of new Asian vehicles fell back to levels recorded in 2009 and 2010 after a promising year in 2011 when 50 new vehicles with a target equity of USD24.3bn were launched. Global funds and funds focused on emerging markets also recorded decreasing volumes as the target equity volume declined from USD19.5bn (2011) to USD12.6bn in 2012 even though the number of funds increased from 14 to 19 in the same period.
In contrast, European funds were able to increase their market share in this year. With a target equity volume that only slightly declined from USD31.6bn in 2011 to USD30.7bn in 2012 and a number of funds that significantly increased from 66 in 2011 to 81 in 2012 (+ 22.7 per cent), European strategies were surprisingly popular amongst fund managers in the reporting period.
In addition to geographical shifts, another significant incursion related to the average fund size contributed to the changing landscape of the industry. The average size of a real estate private equity fund dropped from USD495mn in 2011 to USD381mn in 2012 (-23.0 per cent). The average fund size in 2012 is also far-off the long-term average (2005-2011) of USD463mn. In respect to the risk-return profile of funds the year 2012 has been marked by increased volumes of core and value-add funds as these respectively recorded market share augmentations from 21.9 per cent (2011) to 26.1 per cent (2012) and from 27.4 per cent (2011) to 33.4 per cent (2012).
Reversely, the market share of opportunistic funds declined from 50.7 per cent in 2011 to 40.3 per cent in 2012 primarily due to the lack of investment opportunities coupled with the constrained financing availability for this type of investments as well as the decrease in the number of Asian and global funds that mainly adopt opportunistic strategies.
Fundraising held surprisingly well in 2012. The total number of funds that held a final closing in 2012 amounted to 91 just off the 92 funds recorded in 2011. On the other hand the total amount of equity raised increased from USD49.9bn in 2011 to USD51.4bn. This development raises hopes for the future as fundraising has stalled over the last three years. This leaves expectations of increasing fundraising numbers as well as fund launches in 2013.
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