Blackstone, Starwood turn to individuals for capital

August 22, 2012 02:30PM

Wealthy individuals are increasingly replacing institutional investors, scared off by memories of the real estate crash, as the source of capital for real estate funds, according to the Wall Street Journal. For example, about 40 percent of Starwood Capital’s latest $2 billion fund comes from individual investors, Carlyle Group sourced 10 percent of its recent $2.3 billion from rich people, Lone Star Capital relied upon individuals for about 20 percent of its $5.5 billion fund and even the Blackstone Group has increasingly turned to high-net worth people for a $13 billion fund it expects to raise.

These investors, from around the world and increasingly from Asia, offer both advantages and disadvantages when compared with traditional pension funds, foundations and endowments, executives noted.

Unlike institutions, individuals act more quickly, are more flexible and often don’t require the same disclosures and reporting information that pension funds demand.

On the other hand, they present a greater risk of reneging on their agreement, are more likely to sue if advertised returns aren’t achieved and make it more difficult to attract institutional investors, which traditionally invest in packs. It’s also less efficient to collect funding from dozens of investors — who must have a net worth of at least $5 million and invest a minimum of $250,000 — than it is from a handful of institutions. [WSJ] — Adam Fusfeld