QOF Bifurcation: Largest Funds are Fewer in Number, but Raise Most of Equity

Published by Jason Watkins on Tuesday, February 6, 2024 - 12:28PM

Qualified opportunity funds (QOFs) tracked by Novogradac continue to show the bifurcated nature of raising equity through the opportunity zones (OZ) incentive: The 71 QOFs that report having raised a specific equity amount of more than $100 million make up 4.9% of all QOFs that report raising a specific amount, but account for 60.2% of all funds raised. Meanwhile the 964 QOFs reporting an equity raise of less than $10 million (constituting 66.0% of all funds reporting an equity amount) have raised 6.9% of all equity.

In short: Large QOFs raise most of the equity, but smaller QOFs–generally focused on one specific project–make up the majority of QOFs. The same is true for QOF managers, who can be divided into the few who oversee most of the equity raised and the vast majority who raise smaller amounts for specific projects.

QOFs tracked by Novogradac raised $3.53 billion in equity in 2023, raising the overall equity figure for the 1,874 QOFs tracked by Novogradac (1,461 of which report a specific equity amount raised) to $37.62 billion over the history of the OZ incentive. That was a 10.4% increase over the total at the end of 2022.

QOFs are the vehicle through which taxpayers invest capital gains to qualify for deferral and other tax benefits. Novogradac collects QOF data on a rolling basis from those that voluntarily provide information and also includes information from public sources such as Security and Exchange Commission filings and press releases.

Blog Graphic: 11 Super QOFs Have Raised Nearly $10 Billion

The QOF figures reported by Novogradac don’t include proprietary or private funds owned and operated by their principal investors. It is estimated that actual OZ investment is greater than the Novogradac total by a multiple of three to four times.

Novogradac divides QOFs into eight brackets for equity reported raised, going from less than $10 million to the so-called Super QOFs, which report $500 million or more in equity raised.

The percentages of the number of funds and the portion of overall reported equity raised have been stable since Novogradac began tracking such information, with the largest funds ranging from raising 23.6% of all equity to 26.0% and the smallest funds varying from 6.6% to 6.9% of all equity raised.

A total of 309 funds are fully subscribed, meaning they have raised their desired equity and ceased fundraising.

Blog Graphic: 14 Managers Oversee QOFs that Account for $16.7 Billion in Equity

Among QOF managers, there were three new members of the $500 million-plus club in 2023, increasing that figure to 14 QOF managers who have raised 44.4% of all reported equity. That’s an increase from accounting for 40.2% of all equity raised at the end of 2022, a change that’s at least partly attributable to the movement of QOF managers from the second-highest group, bringing all their equity (even that raised when they were in a lower range) with them. The percentage of overall equity raised by the next-largest group–$250 million to $500 million–decreased by 3.0%.  This also indicates that QOF managers with a successful track record have been able to continue raising capital for new OZ projects.  

The majority of QOF managers, just like the majority of QOFs, oversee less than $10 million. Those 568 managers (64.2% of all QOF managers) have raised 3.9% of all funding.

Of all QOF managers, 274 (23.7%) oversee more than one fund–and those managers have raised $30.0 billion (79.8% of all equity raised). The median amount raised by all fund managers is $4.5 million, but multi-fund managers have a median of $21.0 million and single-fund managers have a median of $2.4 million.

Blog Graphic: Nearly Three-Fourths of All QOFs Focus on Single Asset

There’s a similar split among QOFs (not managers) that raise equity for a single asset (a specific property) or for multiple assets: The single-asset QOFs make up 72.7% of QOFs for which that information is known, but raise only 24.9% of the equity. The 27.3% of QOFs focused on multiple assets raise most of the equity, 75.1%. Single-asset QOFs have a median of $3.5 million reported raised, while multi-asset QOFs have raised a median of $19.5 million.

The information contained in this blog post is for informational purposes only and does not constitute an offer to sell or solicitation of an offer to buy securities. Novogradac does not provide investment advice and the information in this report is not to be construed as a recommendation to engage in any specific transaction. Readers are urged to consult with their own professional advisors if they are considering investing in a QOF.

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