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Insurance Companies Investing in Private Real Estate Funds - August 2013

by Ee Fai Kam

  • 14 Aug 2013
  • RE

Insurance companies have long been an important source of capital to private real estate funds. Having a long lifespan, private real estate funds complement the long investment horizon of insurance companies. At present, there are 192 insurance firms worldwide that invest in private real estate funds. Collectively, they manage $14tn in total assets, of which at least $40bn is allocated to private real estate funds. So what are the preferences of these 192 firms?

Preqin’s data shows that half of these 192 firms are large investors with $10bn-$100bn in assets under management (AUM). Twenty-eight percent are medium firms with AUM between $1bn and $10bn, while 16% are extra large corporations each having more than $100bn in assets. Small companies form the least of these 192 insurers; only 6% have AUM less than $1bn. This is consistent with our understanding of the real estate asset class; private property funds typically lock in capital for 10 years or more, resulting in the exclusion of smaller firms which lack the financial resources to maintain sufficient liquidity over the long term.

Over a third (35%) of insurance companies which have a preference for unlisted property funds are based in the US. The country with the next highest population of insurers interested in private real estate funds is Germany (10%), while Finland comes in third (7%). Among the top five, South Korea is the only Asian country (5%). There are as many insurance companies based in the UK that invest in private real estate funds as in South Korea, while Canadian firms make up 4% of the pool of 192 investors.

The value added strategy is most popular with insurance companies investing in private real estate funds; 63% of the investor pool will consider value added vehicles. Sixty-one percent are interested in opportunistic private equity real estate funds, while 53% prefer the lowest risk strategy of core funds. Forty-five percent of insurers interested in unlisted property funds are open to the core-plus strategy, while 37% and 25% will invest in debt and distressed opportunities respectively. The fund of funds channel represents the least popular investment route among insurers internationally; only 12% will consider investing in real estate fund of funds vehicles.

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