New research from Preqin has found that 359 institutional investors, or 9% of all institutional investors allocating to real estate, invest $1 billion or more in the sector. However, this 9% of investors accounts for 84% of all capital committed to real estate.
Public pensions make up the largest percentage of this group, accounting for 27% of all capital invested by those allocating $1 billion or more. Insurance companies follow with 22% and asset managers account for 17%. Preqin also determined that the average investor in this $1 billion or more group allocates an average of $77 million to a real estate fund.
These investors also are more willing to allocate to start-up managers. In 2013, capital committed to first-time managers launching a private real estate vehicle was only 5% of all capital invested in the sector. Yet of the investors who commit $1 billion or more to the sector, 29% invest in first-time funds, and another 15% are considering doing so. On the other hand, for those who commit less than $1 billion, 11% said they would invest in first-time funds, and 12% said they would consider it.
Investors who allocate $1 billion or more are also more likely to invest in joint ventures, invest in separate accounts and make co-investments. 75% of this group invests in joint ventures, whereas 24% of smaller investors will do the same. 72% of the larger group invests in separate accounts, while 27% of those investing less than $1 billion use separate accounts. And 63% of the $1 billion or more group make co-investments, compared to 26% for the smaller investors.
“These larger investors have a greater depth of resources and more diversified real estate portfolios than other smaller investors in the asset class, and are therefore more willing to invest in first-time time fund managers, or to form separate accounts and joint ventures with external real estate managers. As such, it is vitally important for fund managers to ensure they are using all avenues available to them to get their funds in front of the key decision makers at these investors,” says Andrew Moylan, head of real assets products at Preqin.
Preqin also estimates through searches on its real estate tool that over the next 12 months, value added funds are likely to be the most popular type of real estate fund for these larger investors, with 68% expected to allocate to the strategy. 64% are likely to invest in core funds, and 54% are expected to invest in opportunistic funds. While investors tend to spread out their investments across different strategies, debt funds and distressed funds will most likely fare worse, with only 14% and 11% expected to invest respectively.
Real Estate Capital Concentrated Within Large Investors, Finds Preqin
New research from Preqin has found that 359 institutional investors, or 9% of all institutional investors allocating to real estate, invest $1 billion or more in the sector. However, this 9% of investors accounts for 84% of all capital committed to real estate.