Real estate funds of funds provide investors with exposure to a wide range of real estate fund strategies and geographies, while being an important source of capital for private real estate fund managers. Fundraising for fund of funds vehicles has seen a steady decline since the financial crisis in 2008. However, 2012 saw real estate fund of funds raise an aggregate $4.3bn from six funds, a dramatic increase from 2011 when 13 funds of funds secured only $2.1bn. Fundraising between January and October 2013 has been slow; six funds have garnered only $800mn in equity commitments, alluding to the on-going challenges faced by fund of funds managers.
Real estate fund of fund managers are mainly based in North America and Europe; 45% of real estate fund of funds managers are headquartered in North America, 48% are based in Europe and the remainder are based in Asia (5%) and Rest of World (2%).
There are currently 21 real estate fund of funds vehicles on the road. The largest fund of funds in market is Partners Group Global Real Estate 2013 managed by Partners Group. The fund is targeting $1bn and is looking to invest in real estate funds, secondary transactions and direct property deals on a global scale. 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 managers are more likely to commit to higher risk/return strategies and first-time funds compared to other investors in the asset class. Sixty percent of fund of funds managers invest in first-time funds compared to only 15% of other investors in real estate, and 20% of fund of funds managers consider investing in first-time funds compared to only 12% of other investors in the asset class. Eighty-three percent of real estate fund of fund managers list value added as a strategy preference. Similarly, 81% have an appetite for opportunistic strategies. The appetite for higher returns among fund of funds managers is clear when considering that only 46% will pursue core or core-plus strategies.