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$1bn Plus Investors in Real Estate – December 2013 (Part I)

by Olivia Harmsworth

  • 11 Dec 2013
  • RE

Despite numerous investors scaling back their activity in the real estate market recently, many larger investors remain committed to the asset class and continue to represent a significant source of capital. Preqin’s Real Estate Online currently features extensive profiles for 359 institutional investors, which have $1bn or more allocated to real estate (hereafter referred to as ‘$1bn plus investors’).

Although $1bn plus investors account for only 9% of the total universe of institutional investors actively investing in real estate, they represent a significant 84% of total capital allocated to the asset class. As such, with these investors representing such a large source of potential capital to fund managers raising private real estate vehicles, it is important to understand their investment preferences and appetite going forward.

When looking at the capital allocated to real estate by $1bn plus investors by investor type, public pension funds make up the largest proportion, representing 27% of total capital allocated to the asset class by these investors. Insurance companies and asset managers represent 22% and 17% of capital allocated respectively.

$1bn plus investors have, on average, considerably more assets under management than other investors, possessing an average of $73bn, compared to only $5bn for all other real estate investors. As such, there is a significant disparity in typical fund commitment size between $1bn plus investors and all other investors, with 66% of investors which allocate less than $1bn to real estate typically committing less than $20mn to a private real estate fund. In comparison, only 13% of $1bn plus investors in the asset class commit less than $20mn, with the largest proportion (41%) committing between $20mn and $49mn. Additionally, 20% of $1bn plus investors typically commit $100mn or more to a fund, demonstrating the impact that securing a commitment from one of these institutions can have on a manager’s fundraising process. On average, $1bn plus investors typically commit a significant $77mn to a real estate fund.

When investing with external managers, larger allocators are more likely to consider alternatives to blind pool fund commitments, as these institutions are more likely to have the skill and resources to conduct due diligence on such investments and to monitor these on an on-going basis. Investor appetite for co-investments, joint ventures and separate accounts also varies noticeably between larger and smaller allocators to real estate. Concerning $1bn plus investors in the asset class, the vast majority will consider all three routes to market, with 63% making co-investments, 75% investing in joint ventures and 72% investing in separate accounts. On the other hand, only 26% of all other real estate investors will make co-investments, 24% will invest in joint ventures and 27% invest in separate accounts. The ability of investors to access the asset class directly is also correlated to their allocation, with 75% of $1bn plus investors investing in the asset class directly, compared to only 31% of all other investors that will do so.

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