The PrEQIn Private Equity and Real Estate Indices capture the returns earned by investors on average in their private equity and private real estate portfolios, based on the actual amount of money invested in private equity partnerships. This blog examines the PrEQIn Real Estate Quarterly Index and how it compares with the PrEQIn Private Equity Quarterly Index and the S&P 500, as well as looking at returns by strategy.
Since 2010, the performance of the real estate and private equity indices have been similar, with the PrEQIn Real Estate Index standing at 229.2 as of 31 December 2012, compared to 227.1 for the PrEQIn All Private Equity Index, and a much lower 118.9 for the S&P 500. Although this demonstrates the improved performance of the asset class, it also clearly shows the sharp decline in valuations that occurred following the financial crisis, with the PrEQIn Real Estate Index yet to return to the peak levels of 337.0 seen in June 2007.
With regards to performance levels across different real estate strategies, the real estate debt index outperformed the value added and opportunistic indices in the period December 2007 and December 2012, standing at 77.2 at the end of 2012, in comparison to the opportunistic index which stood at 64.3 and the value added index which stood at 54.5. Debt funds are playing an increasingly prominent role in private real estate, with a growing number of investors targeting the strategy. Recent interviews with real estate investors, examined in Preqin Investor Outlook: Alternative Assets, H2 2013, revealed that 23% of investors in private real estate are targeting debt funds in the next 12 months. In comparison, only 8% of investors were targeting this strategy in the 12 months from January 2012. This growth in appetite for debt is a reflection of the belief held by many investors that debt may provide better risk/adjusted returns than funds making equity investments. The outperformance of the strategy in this period, in comparison to opportunistic and value added strategies, demonstrates the potential merit of this view.