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US West Coast-Based Investors’ Preferences for Private Real Estate Funds – October 2014

by Brian Chung

  • 02 Oct 2014
  • RE

Preqin’s Real Estate Online currently tracks 277 institutional investors throughout the US West Coast, including California, Oregon and Washington. These LPs have aggregate assets under management of more than $3tn and on average, currently allocate 8% of total assets to real estate, which is below their average target allocation of 8%. California-based investors (76%) are the most prominent out of the three West Coast states investing in the asset class. Washington follows with 17% of West Coast-based investors and Oregon (7%) makes up the rest. 

As West Coast-based investors seek to fill their target allocations, LPs will pursue different strategies, as shown in the chart above. With regards to fund types, 52% of West Coast-based investors favour funds following a value added strategy and 49% target opportunistic funds, suggesting that half of West Coast-based investors seek higher risk in return for higher returns when committing to real estate funds. Lower-risk core strategy funds attract 43% of investors and a core-plus strategy is preferred by 29%. Debt and distressed real estate funds are targeted by 36% and 32% of West Coast-based investors respectively.

In the next 12 months, West Coast-based investors will commit further capital to private real estate funds. The Weingart Foundation, a $789mn Los Angeles-based foundation, will commit up to $20mn to a value added or an opportunistic fund. The foundation will look to form new GP relationships, and will target a real estate fund investing globally. Oregon State Treasury, a $70bn public pension fund will also commit up to $1.1bn in the next 12 months to private real estate funds. The pension fund will target US-focused funds utilizing a value added strategy with existing fund managers in its portfolio and GPs it has yet to work with.

In terms of geography, real estate fund investors on the West Coast have similar preferences, with 91% targeting North America-focused funds. Real estate funds investing capital throughout European real estate markets are targeted by 37% of West Coast-based LPs, and Asia-focused funds are sought by 29% of these investors.

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