Private Sector Pension Funds Investing in Real Estate – May 2013

by Karun Ahluwalia

  • 01 May 2013
  • RE

Private sector pension funds represent one of the most significant institutional investors in the alternative assets space. Preqin's Real Estate Online database has identified a total of 722 private pension funds that are currently active in the real estate asset class. Twenty-nine percent of private sector pension funds investing in real estate have less than $1bn in assets under management (AUM), 55% manage total assets of between $1bn and $9.9bn and 10% have total assets between $10-19.9bn. Only 6% have total assets exceeding $20bn.

A significant 60% of private sector pension funds have overall real estate allocations of less than $250mn. Seventeen percent allocate between $250mn and $499mn to the real estate asset class, while a further 11% have investments ranging between $500mn and $999mn. Furthermore, a high proportion of private sector pension funds (12%) have more than $1bn committed to the asset class.

In terms of fund strategy preferences, Preqin’s data shows that private sector pension funds have a strong preference for core vehicles, with 75% favouring this strategy, which may highlight the cautious nature of this investor group given the current economic climate. Forty-eight percent of all private pension funds exhibit a preference for value added funds, with opportunistic funds in the sights of 39%. Debt funds are preferred by 24% of private pension funds, while 17% target distressed vehicles. Four percent of these investors demonstrate a preference for core-plus funds. Only 11% and 4% of private sector pension funds consider real estate funds of funds and secondaries respectively.

As for geographic preferences, North America remains the most favoured region by private sector pension funds, with 63% favouring this location. This is closely followed by Europe, where 62% of private sector pension funds target opportunities. These statistics reinforce the idea that private pension plans are more inclined to invest in established markets, where they perceive there is less risk. Twenty-eight percent demonstrate a preference for real estate investments in Asia, while Africa, Australasia and South America make up only 7% of private sector pension fund interest in the respected regions. Interestingly, 21% of all pension funds have portfolios that take into consideration global opportunities. 

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