Preqin's Real Estate Online database is currently tracking 339 endowment plans investing in the real estate asset class, representing 10% of the global real estate investor universe. Endowment plans have an average current allocation to real estate of 8% and an average target allocation of 9%.
Of the endowment plans active in the real estate market, 90% invest in private real estate funds. Prior to the financial downturn, these institutions had been small but frequent investors in the private real estate fund industry. However, economic uncertainty led to many putting a hold on their investments. With improving market conditions, many of these institutions are likely to become active in the market once more.
Endowment plans have a strong appetite for the higher risk/return strategies, with 64% investing in value added funds and 61% having a preference for opportunistic funds. These are the fund types that endowment plans are likely to commit to as they become more active in the market. Low-risk core funds are targeted by 34% of endowments and 29% are interested in funds utilizing a distressed strategy. Core-plus, debt and secondaries vehicles are targeted by 19%, 18% and 4% of endowment plans respectively. Twenty-three percent are interested in funds of funds, a very popular route for small to medium-sized investors in the asset class, and with 57% of endowment plans active in real estate having total assets of less than $500mn, it is unsurprising that these vehicles attract such a significant proportion of endowments.
With regards to geographic preferences, 77% of endowment plans allocating to property are interested in investing North American real estate markets, 33% have a preference for Europe and 19% will invest in Asia and Rest of World. Of the endowments that are looking to make new real estate fund commitments in the next 12 months, 75% indicated that they will invest in North America, 25% will seek investments in Asia and Rest of World and 19% are interested in Europe. The eurozone crisis is a key reason why European real estate investments are targeted by such a small proportion of endowments that are hoping to commit new capital to funds in the next 12 months.