Private sector pension funds constitute a large proportion of the real estate investor universe. Preqin’s Real Estate Online service currently tracks 978 private sector pension funds that are active in the real estate asset class, with total assets under management (AUM) of more than $6tn. The majority of these investors have substantial amounts of capital at their disposal: 68% have more than $1bn in AUM, including 7% with total assets that exceed $20bn.
It is possible that private sector pension funds will inject more capital into real estate over the mid- to long term as these investors move towards their strategic targets to the asset class; 73% have a current allocation to real estate of less than 10% of AUM, while 48% maintain a target allocation of more than 10%. Furthermore, a notable 7% of private sector pension funds allocate more than a fifth of their total assets to real estate.
As shown in the chart above, there is a clear preference among private sector pension funds to invest through lower risk private real estate funds, with 80% targeting core vehicles. However, significant proportions still target the higher risk value added (49%) and opportunistic funds (41%). In line with their strategic preferences, the majority of private sector pension funds will target the lower risk markets in North America (66%) and Europe (59%) when investing through private real estate funds.
Sixty-six percent of private sector pension funds favour North America for their real estate investments. This is closely followed by Europe, where 60% of private sector pension funds target opportunities. The fact that these funds tend to invest in established markets highlights their tendency to risk aversion. Twenty-five percent exhibit a preference for Asia-focused funds, with a similar proportion targeting global opportunities.