A recent study conducted by Preqin (the results of which are featured in Preqin Investor Outlook: Alternative Assets, H2 2013) found that property remains an important part of many sophisticated investors’ portfolios. Eighty-seven percent of investors interviewed plan to maintain or increase their allocations to the asset class in the next 12 months, with only 13% of investors expecting to scale down their exposure to the asset class. Ninety-two percent of those interviewed expect to maintain or increase their allocation to real estate in the long term. Even more encouraging for fund managers is the finding that 40% of investors surveyed expect to increase their allocation to property in the longer term.
The majority of investors interviewed (65%) stated that the performance of their real estate fund investments had met their expectations in the last 12 months. These results could be attributed to the improving performance of real estate funds in the last couple of years; there has been a positive average change in NAV of closed-end real estate funds in each of the 11 quarters to December 2012. This may also reflect changing attitudes of investors, which may accept more modest returns in the current environment. Twenty-five percent of those interviewed felt that their real estate investments had fallen short of their expectations. While only 10% of investors interviewed felt that the performance of their private real estate fund investments had exceeded their expectations, this is a significant increase on the 3% of investors that stated so when interviewed in December 2012.
Real estate can perform a number of roles within an investor’s portfolio, offering a range risk/return profiles, providing diversification, steady income streams and acting as an inflation hedge. When asked whether investors’ confidence in real estate to perform such objectives had changed in the last 12 months, a significant 69% stated that their confidence in real estate to perform portfolio objectives had remained unchanged in the last 12 months. Twenty-two percent of interviewees reported that they have increased confidence in their property investments to perform portfolio objectives, compared to 11% stating reduced confidence in the real estate asset class.