Record ‘dry powder’ for PERE investment will lower performance

Private equity real estateTwo-thirds of private equity-real estate (PERE) firms intend to deploy more capital this year, a survey has indicated.

Preqin, a private equity researcher, found almost half of 180 PERE fund managers planned to invest significantly more money in 2017.

But valuations were a key concern for fund managers and many have reduced their performance objectives as a result.

This is because the industry has a record $250 billion (€237 billion) of “dry powder” (unused capital), which has increased competition for assets and put extra pressure on asset pricing.

Just over half of managers surveyed said competition for lower risk assets had increased and 41% ranked opportunistic assets as the most fiercely sought after type of investment.

Just under half of the managers with a fund in the market had lowered their performance expectations, Preqin found.

Over the last two years, PERE investment activity – which combines debt and equity investments in property – has increased notably, with the aggregate value of deals reaching $242 billion in 2015, and $220 billion last year.

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