GLOBAL – Investors have regained confidence in private real estate funds, with more than half (53%) planning to commit new capital this year, according to a poll by private equity research firm Preqin.
The anticipated increase follows a recovery last year as 49% of investors allocated to private funds – the highest percentage in three years.
Real estate data manager Andrew Moylan attributed the renewed appetite for private real estate to its performance last year.
Closed-end funds distributed $41bn (€30.6bn) in the first half, compared with $48bn for the whole of the previous year.
It comes against an overall intended boost in appetite for real estate, with 43% of 100 investors interviewed expecting to increase their overall allocation to the asset class in 2013.
Asian institutional investors are leading the increase in capital commitments (86%) for 2013 as part of a shift from traditional to alternative assets, compared with 48% of North American and 39% of European investors.
Unsurprisingly, Asian investors (75%) were also more likely to be satisfied with the performance of their private real estate investments to date.
In contrast, the private portfolios of 63% of North American and 53% of European investors failed to meet expectations.
Other concerns cited by investors as potentially negative influences on their private real estate portfolios include the macro environment (40%), fees (17%) and lack of liquidity (13%).
Despite the apparent upswing in overall investor appetite, the amounts likely to be committed to private funds are relatively modest.
Among investors with specific investment plans, 43% planned to make only one or two new commitments.
While separate accounts and other non-fund structures continue to appeal to institutional investors, this year's survey saw shifts in appetite for specific fund styles.
Although 45% of investors will continue to invest in core, the number targeting value-added funds has increased from 47% to 55%, and those looking at core-plus funds from 26% in 2012 to 45%.
Preqin researchers believe the significant shift towards value-added funds indicates both higher return requirements than those available in core funds and investors' perception that core assets are overpriced.
Meanwhile, the percentage of investors considering debt funds has increased from 8% last year to 34% as investors target strategies they see as generating potentially higher returns with relatively low risk.
