Foundations Investing in Private Equity Real Estate

by Carla Henry

  • 02 Dec 2011
  • RE

Despite their relatively small size compared to other types of investors, there are a significant number of foundations actively investing in real estate, with a number also considering entering the asset class.

In terms of overall allocations to real estate, 46% of foundations have less than $100mn invested in property, whereas 19% have between $100-249mn invested, and 10% have real estate portfolios worth between $500-999mn. In contrast, a minority (4%) of foundations have real estate portfolios valued over $5bn. An example of a foundation with a significant real estate allocation is Church Commissioners for England. Its $2.5bn real estate portfolio is split 80% to direct real estate, 5% to listed real estate and 15% to private real estate funds.

As of December 2011, the average real estate allocation of these institutions was 9.2% of total assets under management; however the average target allocation to real estate for foundations was 10.8% of total assets. Of the 371 foundations that invest in real estate tracked by Preqin, 83% invest in private real estate funds, 32% invest in real estate directly and 38% invest in listed real estate. The majority of these foundations (88%) are based in North America, whereas 11% are European, with the remaining 1% based in Asia and Rest of the World. In terms of assets under management, 39% of foundations have less than $1bn in assets under management, 29% have between $1-4.9bn and 9% have between $10-24.9bn in assets. An example of such a larger foundation investor is Wellcome Trust, which has £14.7bn in total assets under management.

Foundations have a particular preference for vehicles with core (84%), value-added (70%) and opportunistic strategies (65%). Finnish Cultural Foundation is one example of a foundation with a preference for opportunistic and value-added funds. It has a 20.5% allocation to real estate, which is split 80% to direct real estate, 5% to listed real estate and 15% to private real estate funds. Debt and distressed strategies are the next popular strategies, with 29% and 27% of foundations having a preference for these investment types respectively. Historically, core-plus and funds of funds are investment strategies least favoured by foundations.

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