by Andrés Ramos, Content Marketing Specialist – eVestment Private Markets
Each month eVestment Private Markets collects and aggregates commitment data from public pension plan investors across Private Equity, Private Debt, Real Estate, and Real Assets to understand the investor appetite for each asset class. The compiled data is analyzed and used to write the Private Markets Monthly Monitor report. With the onset of COVID-19 in the United States, we began to pay particular attention to changes in commitment activity across the asset classes to understand how pension plan investors were responding to the pandemic. The full reports can be requested here.
While the Monitor covers all asset classes, we wanted to spend some time discussing Real Estate fundraising figures, given it is one of the asset classes potentially most affected by the ongoing pandemic. The graph below shows monthly Real Estate commitments from January 2019 through April 2020 to help us identify year-on-year changes
The 2019 figures show signs of cyclicality with commitments ticking higher in quarter-end months, particularly March and April. While June 2019 saw increased activity compared to April and May 2019, the commitments, the month was far less active than March or September.
As with other asset classes, January, July, and August were the least active months for new real estate commitments.
When comparing 1Q 2019 to 1Q2020, there was a significant drop-off in terms of both average number commitments as well as average commitment size. Year-over-year, dollars committed dropped over 40% and the number of commitments made decreased 11%.
Commitments dropped further in April 2020 where public plans committed less than half the amount ($713 million) they did in April 2019 ($1.51 billion).
Real Estate has been especially hard hit by the COVID-19 pandemic, and these fundraising figures could be a canary in the coal mine for the industry. Economic closings have impacted multi-family and residential real estate through reduced demand for new homes and the inability of out-of-work renters to pay rent. The impact on commercial real estate is in some ways still not fully realized, but some industry observers believe that remote work represents an existential threat to office buildings. Coming out of the pandemic, some companies may choose to continue operating with remote work arrangements and completely forego renewing leases or moving into new office space.
Moving into the summer months, and the gradual re-openings of economies, it will be interesting to see what will happen in Real Estate. Fund managers will hope to see a surge of investment from LPs who were taking a “wait and see” approach to the pandemic, as well as those who were impacted by drawdowns in public markets or adversely affected by the lack of in-person meetings. What they won’t want to see is new commitments continue to stagnate due to structural concerns with the asset class.