InsightsKAP’s insights on private equity investor relations and fundraising
Welcome back to the weekly Re-KAP where we round up market and LP news from the RE PE marketplace (Nov. 22, 2017)
- Smaller Private Equity Funds Get More Competitive. Big name players in the real estate private equity fund business have been cashing in on fundraising prowess over the past several years. But smaller firms are proving they can bring home the bacon. According to the November 2017 Real Estate Spotlight from Preqin, smaller real estate private equity funds are leveraging their strengths to generate higher average returns and consistently outperform mid-size and large funds. Although strategies vary, some common traits that often work in their favor include a more agile and efficient structure, as well as more focus on a specific niche or micro-market.
- Harvard University’s endowment is in talks to move the management of a portion of its real estate investments to Bain Capital. Under the plan being discussed, Bain would hire about 20 people from the team at Harvard Management Co. (“HMC”), which oversees the $37.1 billion endowment. Bain would become the money manager for Harvard’s direct real estate investments, which currently represent more than half of its $5 billion real estate portfolio (the remainder of RE investments are made through external fund companies which would remain under HMC’s direct control.) The deal would advance the CEO’s effort to overhaul the endowment and cut its 230-person staff in half by spinning out investment teams. Like other endowments, Harvard has produced mediocre investment results for the last decade. The deal would also be a significant step for Bain, which has stayed out of real estate even as competitors have pursued the asset class.
CAPITAL RAISING UPDATES
- Brookfield Asset Management held a final close for its Brookfield Real Estate Finance Fund V (BREF V) with aggregate commitments of approximately $3 billion from 64 institutional investors, including $400 million from Brookfield. The firm prides itself on being the largest investor in every fund it raises. BREF V is Brookfield’s fifth commercial real estate finance fund targeting mezzanine debt investments through the origination of financing for high-quality properties predominately in major markets across the U.S. To date, the fund has made nine investments, representing aggregate mezzanine lending commitments of approximately $422 million. In related news, Brookfield’s CEO Bruce Flatt is leading efforts to build name recognition for the Toronto-based company.
LIMITED PARTNER NEWS
- Employees Retirement System of the State of Hawaii (HIERS) has committed $50 million to Starwood Global Opportunity Fund XI, an opportunistic fund with a $6 billion fundraising target. The $15.3 billion public pension fund currently has a 10.6% allocation to real estate, well above its 5.5% target. A typical investment size for HIERS is between $15 million and $50 million.
- The City Pension Fund for Firefighters and Police Officers in the City of Miami Beach has committed $40 million to US Real Estate Investment Fund (US REIF), managed by Intercontinental Real Estate. US REIF focuses 80% of capital on core and core-plus properties, but retains 20% for value-added opportunities. US REIF invests across the U.S. and across sectors (office, multi-family, industrial and retail). As of March 31, the $831 million pension fund had a 5.2% allocation to real estate, above their 5% target.
- Employees Retirement System of Texas (Texas ERS) has committed $65 million to Waterton Residential Property Venture XIII, which acquires well located multifamily assets in major U.S. markets. The $27.5 billion public pension fund is an active investor in real estate. It currently allocates 9.65% of its total assets to real estate, below its target allocation of 12% to the asset class. Texas ERS also plans to provide an update and overview of its Emerging Manager Program at the December 12, 2017 Board Meeting.
- Illinois Municipal Retirement Fund (IMRF) has committed up to $75 million to Artemis Real Estate Partners Fund III, according to Nisa Neely, senior communications specialist at the pension fund. Like its predecessors, Artemis’ third fund invests in multifamily, office, industrial, retail, senior housing and self-storage across the U.S. and targets value add / opportunistic returns. The $38.6 billion public pension currently allocates 5% to real estate, below its 8% target.
- Ohio Public Employees’ Retirement System (OPERS) has redeemed $100 million from JP Morgan Strategic Property Fund and $50 million from UBS Trumbull Property Fund to help balance its real estate portfolio. These are only partial redemptions and the $94.7 billion public pension fund will remain an investor in both funds. OPERS reduced its exposure to core open-ended funds to keep it in balance with its two other real estate investment channels: close-ended funds and separate accounts. OPERS currently allocates 9.1% of its total assets to real estate, below its 10% target.