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Strategy Preferences of Real Estate Funds of Funds

by Farhaz Miah

  • 29 Jun 2012
  • RE

By comparing the targeted strategies of funds of funds closed between 2010 and May 2012 with those of funds of funds currently in market seeking capital from investors, we can see how the investment strategies of real estate fund of funds managers are changing. Opportunistic funds are highly favoured by both groups of vehicles. Eighty-eight percent of funds of funds closed from 2010 to May 2012 target opportunistic funds, while 72% of funds currently in market have a preference for such funds. Value added funds are targeted by three-quarters of funds of funds closed in 2010 to May 2012, while 56% of funds in market will invest in value added vehicles.

Half of funds closed recently have stated a preference for distressed funds, and 39% of funds in market will consider such vehicles. Only 6% of funds of funds closed from 2010 to May 2012 target core funds, while 17% of funds in market would consider such funds. Core-plus funds are considered by 19% of funds of funds that have closed recently, while 22% of funds of funds in market would consider such vehicles. This demonstrates increased risk aversion among fund of funds managers, with appetite decreasing for higher-risk funds and increasing for lower-risk funds, potentially in response to a shift in investor preferences. Additionally, fund of funds managers are placing more emphasis on debt strategies to take advantage of dislocations and opportunities presented in the post-financial crisis climate.

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