It is typically the small and medium-sized investors that commit to real estate funds of funds, with 78% of institutions that invest in such vehicles having total assets of less than $5bn. These investors utilize funds of funds to access a range of underlying vehicles which they may not be able to gain exposure to directly due to the minimum commitment requirements of individual funds, or because they do not have the resources to source and maintain a diversified private real estate fund portfolio.
Those with $5-9.9bn in assets under management account for 7% of fund of funds investors, 11% have $10-49.9bn in assets, and only 4% have more than $50bn in total assets. Appetite for funds of funds decreases with increasing investor size. Eighteen percent of private real estate fund investors that have less than $1bn in assets will invest in funds of funds. This figure decreases to 10% for institutions with more than $10bn in assets. The larger institutions are more likely to have the resources required to build an extensive and diverse portfolio of individual funds and so are less inclined to commit to funds of funds.
Investors in fund of funds vehicles are also more likely to have smaller real estate portfolios. Over half of these institutions have real estate allocations of less than $100mn, 26% have property portfolios worth $100-499.9mn, and 9% have $500-999.9mn allocated to the asset class. Seven percent of these organisations have more than $2.5bn allocated to real estate. This last group of investors includes large institutions that have made the occasional fund of funds commitment and do not actively pursue this strategy, as well as institutions that have used such vehicles to acquire exposure to unfamiliar markets or regions that they cannot, or are unwilling to, access through direct fund investments. Some investors also use funds of funds to gain exposure to emerging managers.