Principal Closes Private Debt Fund With Nearly $600M in Commitments

Principal Real Estate Investors has closed its third high-yield private-equity fund with $578.6 million in total commitments. The firm raised capital globally, securing a total of 30 limited partner commitments from a broad spectrum of investment groups and global markets, including the US, Asia and the Middle East.

The fund will offer loans on private real estate transactions, focusing on mezzanine debt, b-notes and senior mortgages as well as construction permanent loans in major US markets. The fund has already committed 37% of its equity in 11 transactions representing a total value of $410 million. Public and corporate pension funds, insurance companies, sovereign wealth funds, endowments, and foundations all participated in the fundraise.

Principal’s latest fund closing is on trend with a rebound in the private equity markets. Research from Preqin revealed strong optimism for deal values and volumes this year. Despite the upset to the private equity markets—including an extreme slowdown in fundraising, which totaled $118 billion compared to $179 billion in 2019—Preqin’s recent investor sentiment survey was relatively positive. It shows 36% of respondents expect to increase allocations over the next 12 months, but one in five survey respondents do expect returns to deteriorate over that same period.

The report believes that the expectation for deteriorated returns is due to either a lack of re-pricing across other assets or the potential for higher interest rates to eat into returns. If the latter is true, Preqin expects pricing to be negatively impacted and the yield differential to other assets may tighten.

Keeping in step with 2020, the report also expects industrial to lead deal volume; however, it also has a positive outlook for core-quality office product. On the other hand, retail is not likely to rebound this year, while hotels will begin to recover as soon as travel reopens and tourists feel safe. Regardless, there is roughly $324 billion in dry powder, and fund managers and investors could face an increasingly competitive environment in the year ahead.

Principal Real Estate’s previous two funds generated stronger investment than the third fund. The previous two funds totaled $1.3 billion and completed $2 billion in investment volume.