US-Based Private Real Estate Investors with Less Than $1bn in AUM – December 2014

by Brian Chung

  • 10 Dec 2014
  • RE

Preqin’s Real Estate Online service currently tracks 1,045 institutional investors located in the US with assets under management (AUM) of less than $1bn. These investors have aggregate assets under management (AUM) of more than $374bn and, on average, currently allocate 7% of total assets to the real estate asset class, slightly below their average target allocation of 8%. Although investors with fewer assets under management are not as active in the asset class as larger institutions, these LPs will still commit a significant amount of capital to private real estate funds going forward.

Foundations represent 37% of US-based institutions with assets under management of less than $1bn. Endowment plans account for 25% of these investors, while public pension funds and private sector pension funds make up 18% and 11% respectively. Wealth managers make up 4% of such institutions and 2% of LPs are family offices. The remaining 3% of LPs are made up of fund of funds managers, government agencies, insurance companies and other firms. 

As seen in the chart above, higher-risk strategies such as opportunistic and value added are targeted by 35% and 42% of smaller LPs respectively. At the other end of the risk spectrum, core and core-plus strategies are targeted by 37% and 15% of these institutions respectively, with debt funds utilized by 16% of investors. This suggests that US-based institutions with smaller AUM will more frequently commit capital to funds that follow higher-risk strategies, due to the potential for greater returns.

With regards to the geographies targeted by these investors, 91% will target private real estate funds investing capital in North America. Europe-focused funds will attract 23% of investors with fewer than $1bn in AUM, while Asia-focused funds are favoured by 16% of these LPs. Private real estate funds targeting property assets throughout emerging market nations will be utilized by only 11% of these investors.

In conclusion, US-based investors with less than $1bn in AUM will continue to commit capital to private real estate funds to fulfil their target allocations. An example is Carleton College Endowment, an $800mn endowment plan that plans to commit $20mn over the next 12 months across three to five private real estate funds utilizing an opportunistic or value added strategy.  Another example is the $600mn James S. McDonnell Foundation, which will commit up to $30mn in real estate funds in the next year, primarily targeting the US via core and value added strategies.

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