Preqin’s performance data shows that US-focused closed-end private equity real estate funds specializing in investments in specific sectors, such as student housing or industrial assets, have outperformed those that invest across a broader range of sectors.

While more than half, 58%, of US-focused sector-specific funds across vintage years 2000 – 2010 beat the median benchmark, only 47% of diversified funds achieved the same. Preqin defines sector-specific funds as those focusing on a single property type, with diversified funds classified as those targeting two or more sectors.

Funds specifically targeting more niche sectors, such as student housing, senior home or medical assets, have performed particularly well – half of US-focused closed-end private real estate funds of vintage years 2000 – 2010 targeting these niche sectors are top quartile performers, with 81% producing above average returns. 48% of industrial US-focused funds are in the top quartile and 76% have beaten the median benchmark.

Other Key Findings:

  • A greater proportion of sector-specific funds make it into the top quartile when compared to their peers, with 30% of sector-specific US-focused real estate funds of vintage years 2000 – 2010 falling into the top quartile when benchmarked against all US-focused closed-end private real estate funds, compared to 20% of diversified funds.
  • Investor appetite for sector-specific funds is increasing, as evidenced by strong fundraising for vehicles of this type. $15bn has been raised by the 39 sector-specific US-focused real estate funds that have closed so far in 2013, 50% more than was raised by funds of this type that closed during the whole of 2012.
  • US-focused residential property funds have seen a particularly large increase in fundraising, with capital raised more than doubling from $4.3bn for funds closed in 2012 to $9.2bn for funds closed so far in 2013. Industrial, niche and retail funds have also seen an increase in aggregate capital raised over the same time period.
  • Sector-specific funds make up 37% of the total capital raised by US-focused private real estate funds that have closed during 2013 so far, compared to 24% in 2012.
  • 68% of sector-specific US-focused real estate funds closed in 2013 YTD have met or exceeded their target size, compared to 42% of diversified funds.
  • Brookfield Core-Plus Office Fund, Inland Retail Property Fund, Paramount Group Real Estate Fund VII and Sunbelt Rental High Yield Equity Fund are currently the largest sector-specific US-focused private real estate funds being marketed, with each seeking $1bn in investor commitments.

Andrew Moylan – head of Real Assets Products, Preqin, said: "Sector-specific real estate funds targeting the US are more likely than diversified offerings to be strong performers, particularly funds that are targeting niche or industrial assets. While the largest real estate fund managers will continue to be able to raise sizeable diversified offerings, institutional investors are increasingly looking for firms that can offer expertise in a particular sector when investing with small and mid-sized managers. This increased appetite for specialist managers has resulted in sector-specific offerings accounting for an increasing share of fundraising for the US private real estate market, with specialist firms more likely to meet or exceed their fundraising goals than those raising funds which target a range of sectors."