Qualified opportunity funds (QOFs) that have raised $100 million or more in equity accounted for 61% of all equity raised by QOFs tracked by Novogradac at the end of 2022. That continued a trend of a minority of QOFs (in this case, the 5.3% of all QOFs for which Novogradac reports an equity amount that have raised $100 million in equity or more) raising the majority of equity for investment in opportunity zones (OZs).
QOF tracked by Novogradac reported $34.09 billion in equity raised as of Dec. 31, 2022–a record $9.68 billion of that in 2022 alone. Of the 1,661 QOFs tracked by Novogradac, 1,274 reported an amount of equity raised and of those, 68 raised $100 million or more–a cumulative $20.7 billion.
QOFs are the investment vehicle through which taxpayers can invest capital gains to qualify for a deferral election and other tax benefits through the OZ incentive. Novogradac collects data on a rolling basis from QOFs that voluntarily provide information. Novogradac also gathers information from public sources such as Security and Exchange Commission filings and press releases, but since Novogradac’s figures don’t include proprietary or private funds that are owned and operated by their principal investors, actual OZ investment is far greater, probably a factor of three or four.
However, Novogradac has tracked QOF data since May 2019 and provides an apples-to-apples comparison for investment, location and for the types of funds.
The largest funds in the QOF survey continue to raise the most equity–since the first report in 2019, QOFs with an equity raise of at least $100 million have never accounted for less than 48% of the overall investment and in the past three years that figure has increased, going from 51% at the end of 2020 to 55% at the end of 2021 to 61% at the end of 2022. That is largely due to the number of Super QOFs, those that raise $500 million or more in equity.
At the end of 2022, there were eight such funds, which had raised a cumulative $7.6 billion in equity, 22.2% of the total. Over time that percentage has gradually increased, going from 13.5% a year ago, when there were only four Super QOFs.
Meanwhile, the vast majority of QOFs remain small: 821 QOFs tracked by Novogradac–or 64.4% of all QOFs reporting a specific equity amount raised–have raised less than $10 million (a median of $1.8 million per QOF). More than half of those are focused on a single project and combined they have raised 6.5% of all equity, albeit for investment in a high number of projects.
The trend of many QOFs raising less money, focused on a single property, is consistent. More than 70% of the QOFs tracked by Novogradac are focused on a single investment, although they have raised just 24.0% of all equity. Those single-asset QOFs have a median equity raise of $3.5 million, while the multi-asset QOFs (those focused on multiple projects) have a median equity raise of $26.8 million. Only 10 single-asset funds have raised $75 million or more and just four of them have surpassed $100 million in equity.
And the largest QOFs–those that raise more than $100 million–continue to raise a higher and higher percentage of the overall funds.
QOFs raising from $250 million to $499.9 million have raised 21.9% of all equity and those raising $100 million to $249.9 million have raised 16.5%.
The percentage of overall QOF investment by QOF size has been relatively steady, outside of the investment by the Super QOFs. Since Novogradac began tracking such data, the percentage in the ranges of $10 million to $24.9 million, $25 million to $49.9 million, $50 million to $74.9 million and $75 million to $99.9 million have varied by no more than 5% from the highest to lowest amount of equity raised.
Equity raised by QOF managers is a different calculation than QOFs, due to the fact that many QOF managers oversee more than one fund–in fact, 252 managers (25% of all fund managers) fit that description. Those multi-fund QOF managers have combined to raise $26.6 billion, 78.1% of the overall total.
Among funds tracked by Novogradac, there are 12 managers who manage at least $500 million of QOF investments (there are only eight QOFs with more than $500 million in equity raised, indicating that several of these managers oversee multiple QOFs with less than $500 million invested). The number of QOF managers at that level is up from seven a year earlier, while the number overseeing $250 million to $499.9 million jumped from 13 to 21. All told, there are 62 QOF managers overseeing funds that have raised at least $100 million in equity.
Despite the increasing number of QOF managers overseeing more than $100 million in equity, the median amount raised by a QOF manager is $5 million, indicative of the number of lower-dollar, single-asset QOF managers. The average amount raised by QOF managers who report an equity-raised amount is $33.8 million (influenced by the 62 fund managers overseeing at least $100 million in equity).