Preqin's Real Estate Online database is currently tracking more than 200 wealth managers’ activities in the real estate asset class. Real estate plays an important role in the portfolios of the clients of wealth managers; the asset class can provide diversification and enhance yields. In a challenging financial climate, inflation risk is an important consideration for investors; real estate can provide portfolios with an inflation hedge, with investment values typically increasing in line with inflation, allowing the investor to protect real returns. Despite these benefits to real estate investment, the recent financial crisis illustrated that the asset class also has its downfalls and should not be regarded as a non-cyclical, risk-free investment.
Of the wealth managers active in the real estate asset class, the majority (63%) have a preference for real estate investments located in North America, 28% have Europe as a preferred investment location, and 12% of these investors have Asia and other regions of the world as a preference in their investment mandate. When examining these statistics in comparison to real estate investors’ locations, the conclusion can be drawn that the majority of wealth managers prefer to invest domestically in the real estate asset class. Sixty-six percent of wealth managers are located in North America, 24% in Europe and 10% in Asia & Rest of World, which is close to a mirror image of the location preference statistics.
This conclusion supports that wealth managers are seeking to examine real estate investments more diligently and are more cautious towards the asset class as a whole. As such, they are choosing to invest domestically rather than internationally. Domestic real estate investment removes the risk associated with foreign exchange markets, which have become less predictable since the financial crisis.