US-Based Investors in Opportunistic Private Real Estate Funds – September 2014

by Justin Hall

  • 17 Sep 2014
  • RE

Opportunistic real estate is an attractive investment opportunity for many investors, with the high-risk nature of investing in funds utilizing the strategy offset by the potential for greater returns. Fundraising for this strategy has grown considerably in recent years, with the $36bn raised by 70 opportunistic funds closed in 2013 representing the highest amount raised since 2008, demonstrating the considerable investor appetite for funds focusing on this strategy. Preqin’s Real Estate Online currently tracks 987 investors located in the US that have an appetite for opportunistic private real estate funds. These firms have aggregate assets under management of more than $16tn, and currently allocate an average of 7% to real estate, below their average target allocation of 8%.

Foundations account for 26% of these US-based investors that are interested in opportunistic vehicles, while public and private pension plans make up 20% and 19% respectively;  16% of these investors are endowment plans. With regards to their assets under management, a majority of these investors (77%) have assets under management of less than $10bn. Smaller investors, such as foundations, are more likely to look to higher-risk strategies in order to maximize returns, whereas investors with greater assets under management are more likely to have a more diversified portfolio in terms of strategy.

Institutions investing in opportunistic private real estate funds tend to have a domestic bias when investing in private real estate; a significant 95% of US-based investors favouring opportunistic funds target North American real estate markets. Fifty-six percent of these investors seek investments that target European assets, while 43% favour Asia-focused private real estate funds. Thirteen percent of US-based opportunistic investors will target funds focused on countries outside of these three core regions, including South and Central America, Africa, Australia, Israel and the Middle East.

Cook County Pension Plan, an $8.7bn public pension fund based in Illinois, is one such investor looking to target opportunistic real estate in the next 12 months. The pension fund will commit $60mn to non-core real estate funds, with a preference for opportunistic and value added strategies, in the next 12 months.

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