Preqin’s Real Estate Online currently tracks 167 investors located in North America that have an interest in first-time real estate funds. These firms have aggregate assets under management of more than $2.7tn and, on average, currently allocate 9% to real estate, below the average target allocation of 10%. This suggests that some of these investors could be looking to maintain or increase their allocation to private real estate funds, and will consider first-time funds as a viable investment option.
The types of investors who will invest in first-time real estate funds have the necessary real estate-specific experience to consider riskier investments. The majority (59%) of North America-based real estate fund of funds managers will consider investing in first-time real estate funds. Thirty-eight percent of investment companies and 27% of government agencies also choose to invest with first-time fund managers. Contrastingly, only 12% of public pension funds and 7% of endowments will invest in first-time funds, which could be due to the lower-risk appetite of these investors.
When looking at North America-based investors with an interest in first-time real estate funds over the last five years, it is interesting to note the change in opinion on these funds. In 2010, 57% of these investors had an interest in exploring first-time real estate funds, while the remainder did not. The proportion of investors considering first-time funds dropped in 2011 to 46%, followed by a five-year low of 35% in 2012. The past two years have seen a slight increase to 36% in 2013 and 37% in 2014. This seems to point to a levelling out of investor attitudes towards first-time funds over the past three years, in which an average 36% of North America-based investors in real estate have maintained an interest in first-time real estate funds.
Preqin’s Real Estate Online tracks investors that are looking to invest in first-time real estate funds in the next 12 months. One such investor, Investors Diversified Realty, is a real estate fund of funds manager looking to commit between $50-75mn to both new and existing managers of real estate funds through to 2015. A less likely investor in first-time funds, Pennsylvania Public School Employees’ Retirement System, a $51bn public pension fund, will also consider investments in first-time real estate funds. The pension fund will commit $700mn to private equity real estate funds over the next 12 months, utilizing opportunistic or value added strategies.