Institutional Investors with a Preference for Core Real Estate Funds – January 2016

by Lydia Clark

  • 14 Jan 2016
  • RE

Preqin's Real Estate Online service currently tracks 1,113 investors that have preference for or have previously made commitments to core private real estate funds. These investors collectively have over $24tn in assets under management (AUM) and an average current allocation to real estate of 8.1%, below their average target allocation 9.3%.

Fifty percent of these core private real estate investors are headquartered in North America, with a further 31% based in Europe. Only 9% of core investors are based in Asia, with the remaining investors located in Australasia and the Middle East. Ninety-six percent of North America-based core investors have a preference for investing in their domestic market, most likely due to the wide availability of core properties in more developed markets.

Due to the characteristics of core real estate, the strategy is an appropriate fit for investors that can match their long-term liabilities against the steadier returns generated by core funds. As such, pension funds make up the majority of investors investing in core real estate; private sector pension funds account for 28% of investors with an interest in core real estate funds, while public pension funds represent 23%.

Of the investors looking to make commitments to core funds over the course of 2016, 52% will target Europe-focused funds, while 44% will target North American-focused funds. Comparatively, only 30% of this investor group will target Asia-focused core real estate funds in the next 12 months; however, as Asia’s real estate market continues to develop, the availability of core properties will increase, as will the number of investors interested in the region.

One active investor targeting core private real estate funds is Netherlands-based Pensioenstichting Transport. The €1bn private sector pension fund is looking to invest €10-20mn in one or two core private real estate funds in the next 12 months, seeking exposure to European and North American markets. One of the largest investors looking to commit to core real estate funds in the next 12 months is Public School Retirement System of Missouri. The $37.9bn public pension fund will invest an estimated $300-350mn in a number of private real estate funds including US-focused core and core-plus vehicles, although it will also look to increase its exposure to opportunistic private real estate funds globally.

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