Asset Managers Investing in Real Estate – November 2012 (Part 2)

by Farhaz Miah

  • 30 Nov 2012
  • RE

Part 1 of this blog series discussed asset managers allocation to the real estate asset class and their preference in terms of fund strategy; following on from this, Part 2 looks at asset managers' target allocation to real estate in comparison to the wider real estate investor universe, other investment routes in real estate considered by asset managers and asset managers' appetite for first-time funds.

Preqin Real Estate Online shows that asset managers are more likely than the wider LP universe to have achieved their target allocation to real estate. Only 34% of asset managers are below target allocation, whereas the figure for the wider real estate investor universe is 59%. While only a quarter of the LP universe (excluding asset managers) has achieved target allocation, 59% of asset managers are at their target allocation. Seventeen percent of the wider LP universe is currently above target allocation for real estate investments, while only 6% of asset managers are above target. Asset managers are seemingly more effective at meeting target real estate allocations than their investment peers. This may be because they are more flexible and able to be more responsive to market conditions, allowing them to alter portfolios and respond to opportunities quicker.

In terms of investment routes to market, 40% of asset managers actively engage in co-investments while a further 15% may consider this. Forty-five percent of asset managers do not invest or consider co-investments with fund managers. Forty-three percent of asset managers invest in joint ventures, with a further 17% considering this route. Thirty-nine percent do not invest in joint ventures. Separate accounts are a method actively utilized by 28% of asset managers. A further 28% will consider separate account structures. Forty-four percent of asset managers do not consider separate account investments.

Asset managers demonstrate a considerably higher appetite for first-time funds than their investment peers in the wider real estate investor market. Twenty-six percent of asset managers invest in first-time funds, in contrast to the 15% of the wider real estate investor community that invest in first-time funds. First-time funds are considered by a further 17% of asset managers, in comparison to 12% considering first-time funds in the wider real estate investor market. Around 12% of asset managers invest in spin-offs only, while only 8% in the wider investor community invest in spin-offs. Forty-eight percent of asset managers do not invest in first-time funds, while 65% of the remaining real estate investor community do not consider first-time funds. This highlights the importance of asset managers as a source of capital to first-time fund managers.

Asset managers can be very important institutions for fund managers looking to raise institutional capital. Through understanding the motivations of asset managers that are active in real estate, fund managers are better placed to align strategies that fit with the investment themes that drive asset managers.

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