GLOBAL - Investment strategies in the fund of funds (FoF) sector have changed significantly over the past two years, and opportunistic and value-added products have lost out as a result, according to new research.
Data providers Preqin found that a considerably higher proportion of real estate FoF managers with new vehicles in the market are seeking to invest in distressed, debt and core-plus funds compared with those that closed to new investment between 2008 and May 2010.
Opportunity funds and value-added vehicles are being targeted by fewer managers, which Preqin said signified "a clear change in investment strategies".
The survey found 52% of FoF managers plan to invest in distressed real estate funds, compared with just 14% of those that closed between 2008 and May 2010.
Furthermore, 30% are targeting core-plus funds (an increase from 10%), while 26% are seeking investments in debt funds (up from 14%).
Conversely, 48% are targeting value-added funds (down from 72%), and 57% will invest in opportunistic funds (down from 86%).
Andrew Moylan, real estate data manager at Preqin, said: "The real estate fund of funds market has grown into an important part of the private real estate fund industry as a whole.
"Despite the slow fundraising environment, FoFs do have capital available to commit, and while many have spent the past 12 months on the sidelines, most have indicated to Preqin they will look to make significantly more new investments in the coming year.
"These firms are experienced investors and adapting their approach to take advantage of the prevailing opportunities in the current market."
There are a total of 57 companies active in the FoF market, managing a total of 119 vehicles, according to Preqin.
FoF managers raised $1.7bn (€1.4bn) in 2009, down significantly from $4.1bn in 2008 and $4.6bn in 2007.
The majority (82%) are non-listed, closed-end vehicles, while 15% are non-listed open-ended structures and 3% are listed entities.