Blog

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.

Continue browsing industry reports, publications, conferences, blogs and more on Preqin Insights