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US-Based Investors in Value Added Private Real Estate Funds – July 2014

by Brian Chung

  • 29 Jul 2014
  • RE

Preqin’s Real Estate Online service currently tracks 1,064 firms located in the US currently investing in private real estate funds through a value added strategy. These firms have aggregate assets under management of more than $1.6tn and on average, currently allocate 7% to real estate, below their average target allocation of 8%.  As investors continue to seek investment in higher-risk strategies, more capital is likely to flow into value added private real estate funds as LPs look to fill their target allocations.

A range of investor types located in the US target investment in value added funds. Foundations account for 23% of these US LPs, while public and private pension plans make up 22% and 20% respectively. Sixteen percent of these investors are endowment plans, with insurance companies representing 5%. LPs with a preference for value added private real estate funds also differ in size. Fifty-five percent of these investors have assets under management greater than $10bn, and 45% of firms have less than $10bn in assets.

In contrast to structure and size, institutions investing in value added private real estate funds have similar geographic preferences.  At 95%, a vast majority of US investors favour value added funds that target properties domestically. Forty-six percent of these LPs seek investments that target European assets, and 35% favor Asia-focused funds. Approximately 11% of value added fund investors will commit to funds that aim to invest in assets across the rest of the world including South and Central America, Africa, Australia, Israel, and the Middle East. In regards to investment types, 61% of these LPs exclusively commit to private real estate funds. In addition to private funds, 29% of firms invest through listed real estate funds, and 17% of investors also invest directly in properties.

In conclusion, US-based private real estate fund investors utilizing a value added strategy overwhelmingly favour investment in real estate assets in North America. Firms with assets under management of more than $10bn are more likely to prefer value added funds than firms with less than $10bn. One such investor is San Joaquin County Employees’ Retirement Association, a $2.4bn public pension fund based in California, which will commit up to $40mn to value added funds. The investor expects to make its next commitment during Q4 2014, and will seek to form new GP relationships.

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