Top 25 North America-Based Public Pension Funds Investing in Real Estate – June 2014

by Brian Chung

  • 06 Jun 2014
  • RE

Preqin’s Real Estate Online tracks over 436 North America-based public pension funds, with a considerable proportion of funds committing a large amount of capital each year. The top 25 public pension funds based in North America by allocation to real estate have aggregate assets under management of more than $2.3tn. On average, these 25 public pension funds have a current allocation of 10%, slightly below the average target allocation of 11%. This is particularly positive for fund managers, as more capital is likely to flow into private real estate as investors look to move towards their target allocations.

When looking at these investors’ strategy preferences, higher-risk strategies continue to be favoured among the top 25 pension funds. Thirty-six percent of the top 25 are targeting opportunistic strategies, while value-added strategies are also preferred by 36% of top public pension funds. Core strategy funds are favoured by 32% of LPs, as debt funds are targeted by 12% of investors. In terms of geography, 48% of these investors will seek funds that are targeting North American assets, while 36% will commit to funds focused on European markets. Future investments in Asia-focused real estate vehicles will attract 20% of top North American public pensions, with 12% of investors focusing on real estate assets in regions outside North America, Europe, and Asia.

Recent years have seen many investors looking at alternatives to blind pool investments, such as joint ventures, separate accounts and co-investments, as this gives investors greater control over investments and increased accountability of the management team. Use of these structures is particularly prevalent among the top 25 pension funds, with 80% investing through joint ventures and 76% percent of North American public pension funds investing in real estate commiting capital to separately managed accounts. Co-investment opportunities are utilized or considered by 56% of these public pension funds. Investing through these structures is often favoured by larger investors, such as pension funds, as it requires significant internal resources to conduct the necessary due diligence and to continually monitor investments.

Many North American public pension funds will seek to achieve their target allocations during the second half of 2014. For example, Michigan Department of Treasury will look to commit up to $400mn to value-added and distressed debt vehicles in the next six months; it also considers joint venture capital structures as well as separate accounts. Additionally, the Ohio Public Employees’ Retirement System (OPERS) will invest at least $500mn in value-added and opportunistic funds targeting North American real estate assets through its separate account portfolios. 

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