Funds of funds constitute an important segment of the private real estate investor universe and are a valuable source of capital for many managers looking to raise real estate funds. The specialized skill set, experience and resources possessed by real estate fund of funds managers enable them to undertake extensive due diligence and invest in niche funds, such as first-time funds or emerging markets-focused vehicles.
Where are these multi-manager firms headquartered? North America and Europe are equally represented, with 96% of the fund managers split between these regions, while Asia and Rest of World fund of funds managers represent the remaining 4% of this universe. Prominent examples include Franklin Templeton Real Asset Advisors, a North America-based fund of funds manager that to date has raised $1.2bn through five multi-manager platforms. It currently has two funds of funds in market, seeking $300mn each. Franklin Templeton Private Real Estate Fund will target global opportunities, while Franklin Templeton Asian Real Estate Fund 2 will focus on value added and opportunistic vehicles located throughout Asia.
Although many fund of funds managers commit to Asia and Rest of World-focused vehicles, surprisingly there are only two active real estate fund of funds managers located outside the US or Europe: China-based Noah Holdings and Profimex, which operates out of Israel. Profimex has raised $65mn for a fund of funds targeting underlying opportunistic and value added real estate vehicles in developed and emerging markets. Noah Holdings, meanwhile, is currently marketing a vehicle that aims to attract capital from high-net-worth investors to deploy to China-focused private real estate funds targeting commercial, residential and retail property. Eighty-two percent of real estate fund of funds managers invest in emerging markets, thus representing a key source of capital for emerging markets-focused funds.
Real estate funds of funds also provide a vital flow of capital to first-time funds. Sixty-three percent of multi-managers have a preference to make commitments to such vehicles, while 21% are willing to consider such investments and a further 2% are willing to allocate to spin-off teams. In stark contrast, only 17% of the overall institutional investor universe, excluding fund of funds managers, invest with first-time managers, while almost two-thirds refuse to invest in first-time funds at all. The majority of multi-managers do not have such investment limitations, with just 14% of fund of funds managers not willing to consider first-time funds in any form.