Private sector pension funds are active investors in real estate, and as of October 2010 the average real estate allocation of these institutions is $504 million. The average target allocation to real estate of private sector pension funds is $660 million.
81% of private sector pension funds that invest in real estate have total assets of less than $10 billion. For example Finnair Pension has just over $500 million (€380 million) in total assets and is looking to invest in a Finland-focused private real estate fund in the next 12 months. 16% have assets of between $10 billion and $39.9 billion and 3% have $40 billion or more in assets under management. An example of which is Sweden’s Alecta Pensionsförsäkring, which is one of the largest private pension funds in the world with over $70 billion (SEK 466.9 billion) in assets. The private pension has a 6% allocation to property and invests predominantly in direct real estate.
In terms of overall allocations to real estate, 34% have less than $100 million invested in property. The same proportion has $100-499 million invested in real estate, and 18% have real estate portfolios worth $500-999 million. 3% have $4 billion or more invested in the real estate asset class, and this includes TIAA-CREF which has a real estate allocation of over $14 billion.
Of the private pension plans that invest in private real estate funds, 72% have a preference for Europe-focused vehicles. This is no surprise considering that the majority of private pension plans that invest in real estate are based in Europe. Just over half of the private pension funds that commit to unlisted property funds target North America-focused funds and 27% are interested in funds investing in Asia and Rest of World.
With regards to the fund strategies that private sector pension plans are interested in, core and value added funds are the most prevalent, with 66% of private pension plans having a preference for core vehicles and 62% having an interest in value added funds. 55% are interested in opportunistic strategies and 31% favour core-plus strategies. Debt and distressed strategies are appealing to 21% and 17% of private sector pension plans respectively.
The information in this blog is taken from Preqin’s Real Estate Online product. There are currently profiles for over 360 private sector pension funds with an active interest in real estate.