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US-Based Pension Funds with AUM Over $1bn Investing in Private Real Estate – October 2014

by Brian Chung

  • 13 Oct 2014
  • RE

Preqin’s Real Estate Online currently tracks 433 public and private pension funds located in the US. These investors have aggregate assets under management of more than $5.8tn and on average, currently allocate 7% of total assets to the asset class, below their average target allocation of 8%. This suggests that as larger investors are under-allocated to the asset class, considerable amounts of capital will be committed as pension funds continue to look to fill target allocations.

US-based pension funds investing in private real estate also allocate capital to direct investments and publicly listed real estate funds. Twenty percent of these investors invest directly in real estate and 43% will invest in listed real estate funds. Pension funds that solely commit capital to private real estate funds represent approximately 49%.

Pension funds with assets under management of more than $1bn target a range of private real estate fund types. Low-risk strategies including core and core-plus are utilized by 80% and 54% of these pension funds respectively. Debt strategies are targeted by 58% of larger pensions and 50% commit capital to distressed real estate funds. At the other end of the spectrum, higher-risk strategies including value added and opportunistic are utilized by 76% and 69% of these investors respectively. Public and private pension funds are able to take on the risk associated with these strategies due to their size, and will commit capital in search for higher returns. Seventeen percent of such investors will target funds of funds and 13% will invest through secondary strategies.

In terms of geography, 97% of these investors will target funds investing in North American real estate assets, as shown in the chart above. European-focused funds will draw approximately 49% of large US-based pension funds and 43% will commit capital to real estate funds investing throughout Asia. 

In the next 12 months, US-based pension funds will continue to commit capital to the asset class. Florida State Board of Administration, a $179bn public pension fund, will commit up to $900mn to private real estate: committing $400mn to private equity real estate funds and $500mn to core real estate vehicles. The public pension fund will target investments throughout North America, Europe and Asia. USG Corporation Pension Fund will commit up to $33mn to US-focused private real estate funds.  

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