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Private Sector Pension Funds Investing in Real Estate – May 2014

by Farhaz Miah

  • 19 May 2014
  • RE

Private sector pension funds constitute a sizeable segment of the real estate institutional investor universe, with total assets under management of the 897 private sector pension fund investors that invest in real estate tracked by Preqin’s Real Estate Online amounting to $5.34tn. With an average allocation of 8% of total assets to real estate (equating to an average allocation of $422mn per investor), private sector pension funds active in the real estate space are an important source of capital for fund managers. 

In regards to current and target allocations to real estate of private sector pension funds, there is a significant upward proportional investor shift from actual allocation. Despite the majority (60%) of investors having a current allocation to real estate of less than 7.5%, 56% of private pension funds are targeting allocations of more than 7.5% of total assets. A considerable 28% of private pension funds are targeting allocations of between 10-14.9% and 19% of these investors have a target allocation of more than 15%. This is particularly positive news for managers currently raising private real estate funds, with a significant amount of capital likely to be deployed into the asset class as private sector pension funds look to move towards their target allocations. 

Typically, 76% of private sector pension funds that are active in private real estate funds display a preference for core strategies, which exceeds the 56% of all other institutional investors showing a preference for this fund type. While 58% of all investors consider value added strategies, less than half (49%) of private sector pension funds target funds employing this strategy. The figure is even lower for opportunistic strategies, with only 41% of private sector pension funds considering this strategy as opposed to 58% of all other investor types. Similarly, appetite is lower than the institutional average for distressed and debt vehicles (24% and 30% respectively) with only 19% and 26% of private sector pension funds considering these strategies respectively. This suggests that this category of investor is generally more conservative with a heightened appetite for lower risk and more stable returns.

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