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Investment Preferences of California-Based LPs vs. The Wider US Investor Universe – April 2014

by Charles Cisterino

  • 14 Apr 2014
  • RE

Preqin’s Real Estate Online service contains extensive information on 1,839 investors in private real estate funds within the United States. Eleven percent of these investors are based in California, demonstrating that these investors make up a significant proportion of the investor universe and therefore indicate the importance of understanding their investment preferences. 

Concerning their allocations to real estate, California-based investors have slightly larger current and target allocations to the asset class than investors throughout the US. California LPs have current and target allocations of 7.4% and 8.4% respectively, compared to 6.7% and 7.6% respectively for US-wide investors. Investors in California are also more likely to target geographically diverse portfolios, with 38% targeting European assets, compared to 32% of all US-based investors, and 32% targeting global funds compared to 28% of nationwide investors. Eighty-nine percent of California-based LPs target North America-focused real estate investments compared to 92% of investors throughout the US.

On average, California investors are more prone to invest in separate accounts with fund managers than US investors at large; 59% of California LPs will invest in separate accounts, compared to 32% of investors nationwide. This may be due in part to the relative abundance of large pension funds in California, with 29% of investors based in the state accounted for by public and private pension funds. Real estate fund managers typically require a large capital commitment for a separate account structure, and with 89% of California’s public and private pensions possessing assets under management of over $500mn, these investor types are often more able to accommodate this capital commitment than other investors. For example, the tenth largest real estate investor in the world, CalPERS, is considering investing $5.7bn to core real estate funds via separate account structures by July 2015.

In conclusion, California-based investors are likely to remain dynamic investors in private real estate. These LPs have a large proportion of investors with high AUMs, are more willing to invest in alternative structures like separate accounts and often target more geographically diverse real estate portfolios. As a consequence, investors based in California will remain important participants in the private real estate market for the foreseeable future.

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