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State of Capital Raising

State of Capital Raising. Anthony Frammartino, Principal The Townsend Group. State of Capital Raising. Anecdotes from capital raisers in the industry “Most capital placement agents will raise well less than half what they raised in 2007”

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State of Capital Raising

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  1. State of Capital Raising Anthony Frammartino, Principal The Townsend Group

  2. State of Capital Raising • Anecdotes from capital raisers in the industry • “Most capital placement agents will raise well less than half what they raised in 2007” • “Less than 1/3 of the funds currently in the market will ultimately close” • “I am “0” for 08”

  3. State of Capital Raising • What do you currently face as capital raisers? • Almost 700 competing investment opportunities as of the end of October 2008 Townsend Open Fund Database Source: The Townsend Group

  4. State of Capital Raising How did we get here? Significant increase in new fund offerings year over year [1] From 224 in 2007 to 312 in 2008, a 40% increase High Return fund offerings increased the most from 194 to 275, a 42% increase New Fund Offerings, by Geography New Fund Offerings, by Sector Source: The Townsend Group [1] Comparison over first three quarters of each year

  5. State of Capital Raising Are managers still raising capital? Yes – but generally at lower levels in 2008 compared to 2007[1] Funds closed from 92 to 79, a 14% decrease 49 of the 79 closed funds in 2008, or 62%, closing at or below target raises Fund Closings, by Sector Fund Closings, by Geography Source: The Townsend Group [1] Comparison over first three quarters of each year

  6. State of Capital Raising Observations on largest active fund raisings [1] 70% of these funds are expected to close in 2009, many began raising in early 2007 2 of 27 funds are at targeted raise levels considering hard and soft commitments Yet only 36% of total commitments are hard to date Observations on open end commingled fund universe 28 funds representing $104 billion in NAV[2] $5.3 billion currently resides in redemption queues, or 5% of total NAVs[3] Estimated return of capital projected at 1 to 2 years [1] Fund set includes 27 funds, each with target capital raises exceeding $1.5B [2] Open end commingled fund data as of end of 2Q08 [3] Redemption queue data as of 11/3/2008 Source: The Townsend Group

  7. State of Capital Raising But isn’t this a great time to invest? Opportunities appear attractive to be certain Developed market distress today especially REIT recaps Private Fund recaps New debt opportunities Returns in excess of 15% net of all fees Emerging market opportunities likely later New Debt Fund Offerings

  8. State of Capital Raising Could be a great time to buy a house if you didn’t have a house to sell first Global equity market returns decreased sharply over the past twelve months MSCI World Index Total Returns[1] [1] Source Morningstar Data as of 11.4.08

  9. Real estate values and returns have been resilient to date[1] Denominator effect of loss in equity values Median investor had 7% of portfolio in RE as of 9/30/2007 Median investor had 11% of portfolio in RE as of 9/30/2008 Not only do investors not have new money for additional investments but must further rebalance from real estate to meet policy requirements State of Capital Raising [1] NCREIF and The Townsend Group

  10. And capital distributions are down dramatically while past commitments are still calling new capital U.S. real estate transaction activity decreased by 56% year-over-year Capital distributions from existing fund investments down almost 75% from prior years average State of Capital Raising Capital Distributions U.S. Real Estate Transaction Activity Source: Real Capital Analytics Source: The Townsend Group

  11. State of Capital Raising In summary: Available options to investors at unprecedented levels, still Total closings and capital raised are down, while Opportunities seem very attractive if not compelling, but Investors simply lack capital/will to invest

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