US Endowments Investing in Private Real Estate Funds – May 2014

by Brian Chung

  • 23 May 2014
  • PE

Preqin’s Real Estate Online service is currently tracking 333 endowment plans located in the United States that are investing in private real estate funds. US-based endowment plans investing in private real estate funds have aggregate assets under management of more than $424bn, with an average current allocation to real estate of 6%, below their average target allocation of 8%.

US-based endowment plans actively investing in private real estate are unevenly distributed throughout the country. Fifty-one percent of these investors are found on the east coast and 32% are found in the central states. The remaining 17% of investors can be found on the west coast, with 26 endowment plans located in California. Three of the top five states with the most endowment plans originate in the northeast, with the most found in New York, at 38. Pennsylvania follows behind with 24 endowments, as Massachusetts and Texas hold 20 and 16, respectively. 

Each of the top 5 states with the greatest number of endowments are currently, on average, under-allocated or fully allocated to the real estate asset class, with the exception of California. Endowments based in California are slightly above their average target allocation of 6%, with a 7% average current allocation. Endowments located in Texas, Pennsylvania and New York are below their respective average target allocations, with Massachusetts LPs fully allocated to the real estate asset class at 7% of total assets.

US endowments continue to favour higher risk/return strategies as 51% of plans have a preference for value-added funds, with 46% favouring opportunistic funds. As the US economy continues to improve, endowments remain optimistic regarding real estate as these two strategies are utilized the most. Core strategies are favoured by 26% of endowments, while debt and distressed funds are preferred by 25% and 23% of US-based endowments respectively. Real estate fund of funds structures attract 19% of US endowments, while core-plus and secondaries vehicles are targeted by 14% and 4% of these LPs respectively.

In conclusion, US endowments are likely to remain active investors in private real estate funds through higher risk strategies in order to reach their respective target allocations. For instance, Texas Tech University System Endowment plans to commit $10mn, while Baylor College of Medicine Endowment will look to commit between $40mn and $50mn to value-added and opportunistic vehicles in the next 12 months.  

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