Illiquid markets stifling real estate funds
Illiquidity within global capital markets is continuing to stifle inflows into real estate private equity funds, according to Ernst & Young.
A report into real estate private equity based on a survey of 300 global real estate funds found the deployment of capital by private equity funds has slowed down - even in emerging markets such as Brazil and India.
While the Eurozone crisis and the uncertainty it has introduced to markets is primarily to blame, there are other "structural and cultural changes funds are having to negotiate coming out of the recession", according to Ernst & Young global real estate fund practice leader Mark Grinis.
The challenges for real estate funds outlined in the report include a tougher regulatory environment, with the imposition of the Alternative Investment Fund Manager Directive in Europe and the Dodd-Frank Act in the US.
There are also calls from investors for increased transparency and oversight on their investments, according to the report. Fifty-two per cent of respondents said investors require greater due diligence before committing to a fund, and 54 per cent said reaching agreements on deal terms and fees was the biggest obstacle to getting a new fund to its first close.
According to Grinis, real estate funds that can "devise and offer creative niche solutions" will be able to set themselves apart from their competitors.
He said there are already two clear trends in real estate funds: the emergence in the US of funds that target the single family residential market, and the growing appeal of senior debt funds.
But despite the challenges for real estate funds, 71 per cent of the managers surveyed predicted that their next fund would raise "the same or more" capital than the last.
Recommended for you
AUSIEX has announced it will acquire FIIG, a specialist fixed income provider with $4.5 billion in funds under advice.
Platinum Asset Management has announced it is in discussions with a global alternatives fund manager regarding a possible merger to create an $18 billion firm.
Frontier Advisors has bolstered its Japanese footprint through a partnership with the $350 billion asset management arm of Nippon Life Insurance Company.
JP Morgan Asset Management has appointed an ETF specialist from Vanguard as it seeks to expand its ETF range.
