Smaller and Newer Real Estate Fund Outperformance Soars


May 15, 2014

New research from Preqin demonstrates that despite a greater concentration of capital being raised among larger private real estate funds in recent years, smaller funds have often outperformed larger funds. Commercial real estate is one of the areas that can be listed in DealMarket’s online platform, and therefore DealMarket Digest’s editor is occasionally covering research into that segment.


Funds of less than USD 500mn in size that began investing between 2005 and 2011 have posted median returns of 5.9% compared to 2.3% for funds over USD 1bn in size, according to Preqin. Despite that trend, funds of USD 1bn or more in size raised the lion’s share of capital (at 56% of the total capital raised in 2013 compared to 29% of capital the year before). Preqin attributes the seemingly counter-intuitive trend as a result of the risk that often accompanies an investment in smaller newer vehicles.


Many large, established players have strong track records, according to Preqin, so institutional investors are looking to invest with managers that have evidence of generating consistent returns. Preqin added that institutional investors who have the skill and resources to seek out attractive emerging managers have the potential to be rewarded for doing so. (Image source: Preqin)

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