Real estate separate accounts are increasingly utilized by investors looking to gain more control over their real estate portfolio, compared to commingled private real estate fund vehicles. Separate accounts have many perceived advantages to investors, including having a greater degree of control over where their capital is invested and the ability to negotiate lower management fees, while still benefiting from the use of a third-party manager.
Preqin’s Real Estate Online service shows a steady increase in investor appetite for this route to market over the past three years. In December 2011, 67% of investors had no interest in separate accounts, with 33% either considering this structure or actively utilizing separate accounts. This compares with 41% of investors considering or using separate account structures in June 2014.
Certain types of institutional investors are more likely to invest in separate accounts than others. For instance, asset managers are most likely to invest via this method, with 43% currently investing in separate account structures, and a further 24% are considering using these vehicles. Insurance companies, public pensions and private sector pension funds are also likely to award these mandates, with 37%, 47% and 38% respectively investing or considering investing in these vehicles. Endowments and foundations are less likely to utilize these structures, as 75% and 80% respectively will not consider investing in separately managed accounts.
Interest in separate accounts also varies by investor total assets, as investors with larger assets under management are more likely to be able to leverage the additional resources and knowledge required to invest via this route. Of the institutions with over $10bn in assets under management, 56% invest through real estate separate accounts, with a further 12% considering these vehicles. With decreasing total asset size, appetite for this route to market also reduces, with 37% of investors with total assets of $1-10bn currently utilizing or considering these structures, and just 22% of investors with less than $1bn considering or actively investing in separate accounts.