8 May 2017
London
Reporter: Theo Andrew

Sovereign wealth funds increase real estate allocation


The proportion of sovereign wealth funds investing into real estate has risen by 4 percent to 63 percent in the past two years, according to Preqin.

It remains the third most popular asset class for sovereign funds, behind public equities and fixed income, which have both seen the number of funds investing decrease in the past two years.

The nature of the long-term investments of real estate, as well as the access to the global market, means it has remained an attractive investment.

According to Preqin, 100 percent of sovereign wealth funds worth more than $100 billion have invested in real estate, while 67 percent of funds worth $50 to $100 billion are invested in the asset class.

Only 36 percent of funds worth less than $1 billion have invested in real estate.

Sovereign funds preferred route to market was direct investment, with 79 percent taking this route, compared to 69 percent through unlisted funds and 38 percent through listed funds.

More than half of their investments have targeted Asia and the Middle East, each taking up 27 percent of the market share, followed by North America at 19 percent.

“In light of interest rates remaining low across many key markets globally, it is unsurprising to see many sovereign wealth funds investing additional capital in real estate to generate income, while on a domestic level real estate investment can bring significant socio-economic benefits,” said Andrew Moylan, head of real estate products at Preqin.

Moylan added: “Sovereign wealth funds focus much of their capital on direct real estate, and continue to expand their investment teams in key markets globally as they build out their real estate portfolios. In doing so, many are able to bypass commingled real estate funds, and may, in some cases, compete directly with them for deal opportunities.”

Total assets under management of sovereign wealth funds reached $6.59 trillion, up 1 percent on the $6.51 trillion recorded in March 2016.

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