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Non-traded Alternative Fundraising Down, But Rebounding Despite Headwinds

Despite the significant headwinds of 2020, alternative investment sponsors are continuing to raise healthy amounts of investor capital.

Despite the turbulence and unprecedented headwinds that have blown throughout most of 2020, IPAVision 2020, the Institute for Portfolio Alternative’s flagship conference, kicked-off online yesterday with optimism from many of its presenters.

Kevin Gannon, managing director of R.A. Stanger & Co., the investment bank that specializes in the non-traded alternative investment industry, delivered a keynote address centered on industry performance through the third quarter that demonstrated a significant decline in equity raise throughout the industry, but a hopeful outlook as a significant rebound during the second half of the year appears to be growing.

“The future is bright for our industry, which I think is very apparent when you look at the resilience demonstrated throughout this challenging year,” said Tony Chereso, IPA president and chief executive officer. “Despite the global pandemic and resulting economic shutdowns, we continue to experience a strong flow of equity into the various alternative investment programs offered by IPA members. This resilience is due largely to the attractive results recorded and the ongoing evolution of investment structures that are increasingly expanding the universe of active participants among wealth advisors and investors.”

In terms of fundraising among the various segments of the non-traded alternative investment industry, Gannon reported that non-traded real estate investment trusts have attracted nearly $8.2 billion in investor equity through Sept. 31, 2020, putting them on pace to raise more than $11 billion by year end. In 2019, non-traded REITs raised $11.9 billion. Global private equity giant Blackstone continued its dominance with 71.8 percent of all equity raised, followed by Black Creek Group and Starwood Capital with 11.0 percent and 7.9 percent, respectively. Lasalle Investment Management and Hines rounded out the top five sponsors in terms of equity raise.

Interval funds, which have enjoyed exponential growth in recent years, raised $4.7 billion through the third quarter and are on pace to raise $6.3 billion for the full year vs. $6.9 billion in 2019. The top sponsors include Versus Capital Advisors, with 17.1 percent market share, followed by SilverBay Capital (14.4 percent), PIMCO (12.6 percent), Griffin Capital (10.3 percent) and Bluerock (7.4 percent).

Delaware statutory trust programs, popular among investors seeking the tax-advantages provided via 1031 exchanges, are on pace to raise nearly $3 billion in 2020, having raised $2.2 billion at the close of the third quarter. Perennial industry leader Inland Private Capital Corporation raised $458.2 million through September, accounting for a dominant market share of 21.1 percent. ExchangeRight (12.3 percent), Capital Square (9.2 percent), Black Creek Group (9.2 percent) and Passco Companies (6.1 percent) rounded out the top five DST sponsors.

According to Gannon, fundraising among non-traded business development companies has largely evaporated, with the notable exception of Owl Rock Capital Advisors, which has raised more than $265 million of the $277.6 million raised by non-traded BDCs through the end of September. Owl Rock accounts for nearly 96 percent of all equity raised for BDCs, which are on pace to raise approximately $370 million for all of 2020 vs. $543.7 million raised in 2019.

Opportunity zone offerings, which raised more than $1.6 billion of investor capital last year, are on pace to raise just over $820 million in 2020. Through the third quarter, the economic development funds raised $614 million, led by Bridge Investment Group ($350 million) and Griffin Capital ($127.7 million). Other notable sponsors, including Inland ($10.9 million) and Capital Square ($6.3 million) were joined by dozens of others to account for the remaining opportunity zone fund capital raise.

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