The last few years have been challenging for those fund managers looking to raise capital for private real estate funds, with a large proportion of investors reluctant to make new commitments to the asset class or committing less capital than they had in the past. While there are still many institutions that are not expecting to be active, an increasing number of institutions are planning to commit fresh capital to the asset class in the coming months. Drawing on data from Preqin’s Real Estate Online, this blog examines the latest searches and mandates of private real estate investors.
Real estate fund of funds managers are the group which expects to be the most active in the year, with 55% planning new commitments in the next 12 months. This group is closely followed by insurance companies and wealth managers, with 53% of both these groups expecting to invest in the coming 12 months.
In terms of investor location, those based in regions outside of North America, Europe and Asia are most likely to be active in the private real estate fund market in the next 12 months, with 52% of such investors planning new commitments. The on-going volatility and sovereign debt crisis in Europe appears to be impacting investor confidence in this region, as demonstrated by only 30% of European investors expecting to invest in the asset class in the next 12 months. Many institutional investors in this region are reducing their capital outlay to the asset class with some halting investments altogether.
Thirty-four percent of North American institutions and 42% of Asia-based investors are seeking new investment opportunities. A shift in investor attitudes, with many Asia-based institutions diversifying away from traditional investments to alternatives, coupled with changing regulations in recent years allowing more Asian institutions to invest in real estate, may help explain why such a significant proportion of these investors look set to be active.
When breaking down active investors by size, as expected, the likelihood of investments in the coming year increases with increasing total assets. Only 21% of investors with less than $1bn in total assets under management and 35% of those with $1-9.9bn in total assets are searching for new funds in the next 12 months.
With regards to the strategic focus of planned fund commitments, the most sought after strategies are value added and opportunistic, with 57% and 56% of active investors seeking these fund types in the next 12 months respectively. The regions most targeted are North America and Europe with 50% and 40% of investors intending to commit to funds investing in these locations in the next 12 months respectively.