Sovereign wealth funds set to become larger real estate investors

real estateSovereign wealth funds (SWFs) look set to become more active in the real estate asset class, according to research carried out by data provider Preqin.

The company says that 84% of SWFs that invest in real estate are below their target allocation to this asset class, which is 5% or more.

However, the research found that 59% of SWFs actively invest in real estate, up from 54% in 2013. This new figure is just a single percentage point behind infrastructure, the preferred asset class for this group of investors.

Of those SWFs active in real estate investment, almost two-thirds (64%) prefer to invest through private real estate fund investments while the vast majority (86%) seek direct investments in real estate assets.

When investing through commingled funds, value-added strategies are the most frequently targeted, with 75% of SWFs looking to make investments in these funds. This is followed by opportunistic funds that are targeted by 71 % of SWFs.

North America is the favoured location for SWFs real estate investment, with 59% seeking exposure to the region.

Notable SWFs that invest in real estate include the Norway-based Government Pension Fund Global and the Abu Dhabi Investment Authority.

“Their large assets under management make sovereign wealth funds increasingly important sources of capital for the real estate asset class, says Andrew Moylan, head of real asset products at Preqin.

These institutions are typically making the headlines for direct acquisitions of trophy assets in global hubs, but sovereign wealth funds also frequently invest through indirect routes to market. As they grow their real estate allocations, it is likely that there will be further diversification to these investors’ portfolios.”

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