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US-Based Investors Targeting Private Real Estate Funds Investing in Niche Properties – January 2015

by Brian Chung

  • 22 Jan 2015
  • PE

Preqin’s Real Estate Online service currently tracks 543 US-based institutions investing in private real estate funds that target niche properties. Niche properties can include education-, entertainment- and healthcare-related properties, as well as car parks, casinos, self-storage, senior homes, stadiums and student housing. These 543 institutions have aggregate assets under management (AUM) of more than $10.7tn, and on average, currently allocate approximately 7% of total assets to real estate funds, below their average target allocation of 8%.

In 2014, real estate funds targeting niche properties as a primary strategy secured more than $2.5bn in capital commitments, while funds targeting niche real estate among other strategies raised more than $10bn in capital commitments. LPs targeting these property sectors are often institutions with a large amount of AUM; institutions with AUM of $5bn or more account for 33% of investors targeting such funds. Larger investors are more likely to have the resources available to conduct the due diligence needed on niche property funds, and have more capital available to deploy to the asset class to maintain allocations.  

US-based LPs investing in niche private real estate funds are prominent investors in the asset class, as institutions maintaining a target allocation of 10% or more represent 42% of these investors, with 41% of investors targeting an allocation to real estate of between 4% and 6%.

In terms of regional investment preferences, North America-focused funds will attract 97% of investors, while Europe-focused funds will be targeted by 54% of investors. Interestingly, Asia-focused funds will be considered by 46% of investors and funds targeting emerging market economies will attract a further 39%. Investors will use different geographies to further diversify their portfolios even as they target niche funds to try to beat benchmarks like the NCREIF property index.

US-based investors committing capital to niche private real estate funds will do so through larger target allocations to the real estate asset class. Institutions with a large amount of AUM are more likely to commit capital to this sector of the asset class as a tool to beat benchmarks. Oregon State Treasury for example, an $80bn public pension fund, will look to invest up to $500mn across two vehicles in the next 12 months, with a focus on mezzanine debt and niche property funds. 

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