Government agencies wield considerable influence over global real estate markets. Preqin’s Real Estate Online service currently tracks 41 government agencies investing in the real estate asset class worldwide, which collectively hold over half a trillion dollars in assets under management. Due to the differing mandates between agencies, their allocations to real estate can vary considerably: 42% of government agencies have an allocation of below 5% to real estate, while 16% have an allocation of more than 15% of total assets. Collectively, however, these investors are under-allocated to real estate; government agencies have an average current allocation to real estate of 10.2% and an average target allocation of 14.6%, indicative of future flows of capital into the asset class.
Geographically, 32% of government agencies tracked by Preqin are headquartered outside North America, Europe and Asia, most of which are based in the Australia (15%) and the Middle East (12%). Twenty-nine percent of government agencies investing in real estate are situated in North America. Despite the Rest of World region being home to 32% of government agencies that invest in real estate, the North America-based agencies, which represent 29%, have assets under management more than twice the size of those in the Rest of World region.
The government agency with the largest allocation to real estate is Caisse des Dépôts et Consignations, a France-based financial institution which has $18bn invested in direct property holdings, listed securities and private real estate funds. However, the government agency that has invested the largest proportion of its total assets in real estate is the Botswana Development Corporation, which holds 50.7% of its BWP 3.6bn assets under management in domestic direct real estate holdings.
The US-based government agency International Finance Corporation (IFC) is planning to invest in private real estate funds in the next 12 months. With $69bn under management, it will seek to commit $100-150mn to private real estate funds that utilize a value added strategy, with a primary interest in Africa, as well as other emerging markets. The agency currently has a 1.7% allocation to the asset class and typically invests between $15mn and $20mn per real estate fund commitment.
Additionally, Kuwait Fund for Arab Economic Development plans to invest $250mn in five closed-end private equity real estate funds over the next year. The $10bn government agency is seeking exposure to value added and opportunistic strategies, investing on a global scale.