Real estate AUM returns to growth, but the future of the asset class is far from clear
Is real estate asset management back on the up? It seems to be, according to the latest numbers from associations ANREV, INREV and NCREIF. Their annual Fund Manager Survey found that global assets under management (AUM) rose 5.7% to €3.8trn – the first increase since 2021.
This good piece of news for the asset management industry comes soon after similar findings on investors. IPE Real Assets’ recent Top 150 real estate investors report showed that total assets also returned to growth this year, rising 6.9% to US$2.18trn (€1.9trn). IPE Real Assets’ own real estate fund manager survey showed that AUM was still on the decline last year. But expectations will be for a return to growth for the first time in four years when the next report is published in November.
$1.4bn real estate fund winds down…
However, our most read news story of the past 30 days by far has concerned the winding down of the JP Morgan US Real Estate Income and Growth Fund, ending a 24-year run for a fund that had approximately US$1.4bn in assets towards the end of last year. It is an isolated case of a large US open-ended real estate fund being wound down, but it illustrates the pressure that real estate investment management has been under after a period of weak performance in the asset class, high interest rates and shifting trends in asset allocation.
…while the latest data-centre platform goes up
Meanwhile, the biggest story of the last seven days was the creation of yet another multi-billion-dollar data-centre platform. US private equity firm KKR, along with Kuwait’s sovereign wealth fund, US electricity company Vistra and AI chip giant Nvidia, have launched Helix Digital Infrastructure, with more than $10bn committed over the long term. There is a stark contrast between infrastructure – an asset class propelled by a seemingly unstoppable AI boom (or AI bubble, depending on your latest perspective) – and a real estate sector still grappling with the effects of a protracted period of weak growth.
Forget the lower-for-longer boom
But those working in institutional real estate still have fresh memories of it not long ago being one of the asset classes of choice among investors. As investment consultants at Mercer recently told IPE Real Assets, the onus is on real estate to reassert itself as a key component in the increasingly competitive alternatives mix. Even if real estate begins to recover from its recent difficult period, the boom years of the lower-for-longer era are not expected to return any time soon.
“We tend to overlook just quite how much the decrease in interest rates or the very low-rate environment really benefited real estate capital flows,” Anne Koeman-Sharapova, head of Europe for real estate investments at Mercer, said last month. “I think real estate transaction volumes wouldn’t have taken quite such a flight if it wasn’t for that environment and for the persistence of that environment.”
Real estate vs infrastructure: if you can’t beat them, join them?
In fact, the next chapter could be quite different from the story of the recent past. There is a growing consensus that real estate and infrastructure could converge, breaking down the walls that have divided the asset classes in the past. Patrizia was predicting this two years ago at MIPIM, when discussions were dominated by talk about infrastructure – as was real estate professor Jim Clayton.
The theme came up at the IPE Real Estate Global Conference & Awards in Rome – including during my onstage interview with Robert-Jan Foortse, head of European real estate at APG. As Foortse said on LinkedIn after the event, “One clear trend: the line between real estate and infrastructure is fading fast as part of a broader real assets approach”.
No more silos: what TPA means for real assets
The picture is further complicated by the growing adoption of total portfolio approach (TPA), which eschews traditional, static strategic asset allocations in favour of more dynamic weightings where asset classes effectively compete with each over time. Could TPA intensify competition between real estate and infrastructure, forcing investors to reallocate from traditional property to yield-hungry infrastructure assets amid rising interest rates or economic shifts? Well, yes and no, as we explore here.
Investors to watch
What is clear is that major institutional investors today are still committing substantial capital to real estate and infrastructure:
California Public Employees’ Retirement System has committed $3bn to both asset classes, although more than two thirds of this went to infrastructure;
Dutch pension fund investors APG and Bouwinvest plan to invest $300m in Korean housing via Tishman Speyer;
Teacher Retirement System of Texas has committed $900m to real assets, the majority of which went to real estate.
To read the latest IPE Real Assets magazine click here.
