Real estate funds of funds form an integral segment of the private real estate universe. While being an important source of capital for private real estate fund managers, these funds also enable institutional investors the opportunity to gain exposure to unfamiliar markets and fund strategies. Fundraising for fund of funds vehicles has steadily declined since the onset of the financial crisis in 2008, although in 2011, 11 funds closed raising $2.1bn. However, only one fund has been able to close so far in 2013, raising $300mn, indicating the challenging environment for fund of funds managers.
The largest fund of funds vehicle to have closed since 2007 was Partners Group Global Real Estate 2011, managed by Partners Group. The fund raised $800mn and targeted opportunities on a global basis. CBRE Europe (ex-UK) Alpha Fund was another vehicle which closed since 2007, having raised €475mn. Managed by CBRE Global Multi Manager, this vehicle targeted locations within Europe, including France, Germany, Italy, Netherlands and Spain.
At present, there are 25 real estate fund of funds vehicles on the road. Of these funds in market, North America is the main geographic focus for fund managers, with 14 vehicles targeting opportunities in the region. Seven funds of funds are targeting Europe and two are focused on Asia. The remaining two funds are Rest of World-focused. Of the 25 funds in market, 56% of funds are being raised by real estate fund of funds managers headquartered in North America. The remaining 44% are being sponsored by real estate fund of funds managers based in Europe. The largest fund of funds on the road is Fondo Investimenti per l’Abitare, which is looking to invest in real estate funds within Europe. The vehicle managed by CDP Investimenti is targeting €2bn in capital. The second largest fund of funds in market is Prelios Fund of Funds, which is targeting €500mn and will invest in foreign real estate funds, specifically targeting acquisitions throughout the US.
Real Estate fund of funds mangers have a preference for higher risk/return strategies compared to other investors in the asset class. Sixty-two percent of fund of funds mangers have a preference for value added vehicles in comparison to other investors, where only 48% favour the strategy. Similarly, opportunistic vehicles are popular among all investors. Conversely, core is a less favoured fund strategy among this investor group, with 38% being interested in this low-risk strategy compared to 55% of other investors. The greater emphasis among fund of funds managers towards higher-risk strategies rather than low-risk/return vehicles is an indication of their tendency to seek greater returns from their investments.