The amount of capital called annually by real estate funds primarily focused outside Europe and North America (Asia & Rest of World) has increased by over five times over the 10-year period of 2005-2015, from $5bn to $27bn, an illustration of how non-traditional markets are developing. With investment activity in Asia & Rest of World increasing, Preqin’s Real Estate Online can offer insight into the track records of over 200 funds focused outside Europe and North America, allowing LPs to evaluate potential investment opportunities and identify those most suited to their portfolios.
Although often perceived as a riskier investment destination, the chart above shows that Asia & Rest of World-focused funds have the lowest risk profile – calculated by the standard deviation of net IRRs – when compared to North America- and Europe-focused vehicles across the vintage range 2004-2014. Furthermore, Asia & Rest of World-focused vehicles have generated higher returns than their Europe-focused counterparts, although both measures for the traditional markets have been significantly affected by the Global Financial Crisis.
There are concerns among some institutions about the prospects for real estate, with 59% of fund managers surveyed by Preqin at the end of 2016 finding it more difficult to source attractive opportunities than 12 months prior. This could be due to heightened competition among fund managers for the best investment opportunities, which, coupled with record dry powder, has led to high valuations for assets, particularly in the developed markets of North America and Europe. As shown by capital calls, investor interest has increased in Asia & Rest of World-focused funds and could yet increase further: vehicles focused on the region distributed $11bn, $12bn and $19bn more capital back to investors than was called up in 2013, 2014 and 2015.