As part of the study conducted by Preqin in Q4 2013 to examine investor appetite for private real estate, investors were asked whether they would alter their allocations to real estate in the year ahead and in the longer term. Encouragingly, the vast majority stated that they would be maintaining or increasing their allocations, with 95% stating so for the next 12 months and 86% over the longer term. In particular, 31% of investors responded that they would be increasing their allocations to the asset class, both in the next year and over the longer term. This is positive for the medium- to long-term outlook of the asset class, with the vast majority of investors remaining committed to the asset class.
When deciding which fund managers to form new relationships with, investors now scrutinize certain attributes more closely than ever before. When asked to state the most important factor they consider when searching for a real estate fund manager, 31% of respondents deemed length of track record to be the most important and 25% cited past performance. With investors placing so much emphasis on track records, firms raising their maiden vehicles are likely to find the fundraising process very difficult, while managers with a proven track record in the space are likely to continue to attract a larger proportion of investor commitments. Fund strategy was the most important factor for 24% of investors interviewed, and alignment of interests between fund managers and investors was the key factor for 15% of respondents.
Despite the fact that only 35% of investors surveyed intend to make new commitments in 2014, those investors which are looking to place fresh capital with fund managers are often the larger institutions, many of which expect to put a lot of capital to work, with 54% targeting investments in three or more funds in the next year. As such, there appears to be increasing polarity between larger investors, which are more confident in their real estate commitments, and those with smaller assets under management, which remain wary of allocating significant capital in 2014. With regard to managers investors will be targeting in 2014, with 31% of respondents considering length of track record the most important factor when selecting fund managers, and past performance being the most crucial factor for 25% of respondents, the more experienced firms are considerably more likely to attract significant levels of investor capital for their funds, with investors particularly cautious concerning investments in first-time funds.