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Merger mania is making life really hard for smaller fund managers

Small private equity firms increasingly struggle

CalPERS headquarters at Lincoln Plaza in Sacramento (Credit: Wikipedia Commons)
CalPERS headquarters at Lincoln Plaza in Sacramento (Credit: Wikipedia Commons)

Merger mania is taking its toll on the real estate fund management industry, as firms fight over more selective institutional clients.

Bavaria-based Patrizia Immobilien, for example, bought three companies over the past year and more than doubled its assets under management to $49 billion. Last year Aberdeen Asset Management and Standard Life merged in a $4.7 billion deal.

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Driving the trend: several institutional clients like pension funds have decided to work with fewer fund managers, making it harder for small firms to compete and creating an incentive to merge. The California Public Employees’ Retirement System, or CalPERS, reduced the number of fund managers it works with to about 100 from 212 in 2015, the Wall Street Journal reported.

Many of the country’s biggest public pension plans are unhappy about the fees managers charge, but they have few alternatives. Firms like Blackstone Group, Apollo Global Management and Carlyle Group still charge management fees of 1.5 to 2 percent and performance fees of up to 20 percent of profits.

Meanwhile, fundraising by real estate fund managers is down slightly from its 2016 peak. Companies closed $123.8 billion in new funds in 2017, compared to $127.7 billion the year prior. [WSJ] — Konrad Putzier

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Private EquityReal Estate FinanceReal Estate Mergers