Private Equity Funds Continue Slow Ascent

Private equity real estate fundraising is gradually rising as the second quarter of 2011 witnessed a $2 billion increase from the previous quarter, according to an analysis from alternative asset research firm Preqin.

Data showed that 18 funds took in a total of $11.2 billion in new capital from investors in the second quarter. The total is up from the $8.9 billion raised in the first quarter of 2011 and the $7.1 billion raised in the fourth quarter of 2010.

The most capital was raised by funds that have a North American focus. Those 10 funds received aggregate commitments of $8.6 billion.

Preqin pointed out that Dallas-based Lone Star Funds had one of the most notable closings in the second quarter. The firm closed on its Lone Star Real Estate Fund II with commitments of $5.5 billion, making it the fifth-largest private equity real estate fund of all time, according to Andrew Moylan, manager of real estate data for Preqin.

Moylan said the increased fundraising numbers, combined with Lone Star's ability to raise a significant amount of funds, offer continued hope to fund managers despite the challenging economic situation.

"The results from quarter two will give some encouragement to fund managers that are currently marketing their funds. Several funds to close in the quarter did so above target, again indicating that fundraising success is possible in the current environment," Moylan said.

The amount of time taken to close funds witnessed a slight decrease in the first half of 2011. Funds that closed in the first half of this year spent an average of 15.5 months on the market. This is less time than it took the funds that closed in 2010 which spent an average of 16.8 months on the market, according to Preqin's data.

However, Preqin's data illustrated that the time taken to close funds today is much longer than in recent years. For instance, funds that closed in 2007 took an average 9.1 months to hit their fundraising targets.

Moylan speculated that as deal volume increases and more distributions occur, investors will have more capital available to make new commitments, which will further improve fundraising.

"This will be a gradual improvement, and with the market remaining extremely overcrowded, many firms will still be facing long periods in the market and others will be forced to abandon their fundraising efforts," Moylan said.