GLOBAL - Institutional investors in private equity real estate are still willing to invest in the asset class this year, albeit cautiously, and remain committed to their investment strategy going forward, suggests a survey conducted by Preqin.

The survey, made up from responses of 60 global investors including pension funds, found investors still find the long-term nature of private equity real estate appealing, and 84% of those surveyed said they would commit to the asset class in 2009.

Approximately 46% of respondents said they were not satisfied with the performance of their overall real estate portfolios in 2008 while the remaining 54% said they were satisfied given the conditions of the market.

Ignatius Fogarty, manager of real estate at Preqin, said: "People see the long-term nature of private equity real estate as appealing because it can avoid the short-term market fluctuations that other forms of real estate experience.

"Investors are using this time to readjust their portfolios, so many are looking at distressed of debt real estate investments which have been set up to take advantage of the market conditions," he continued.

At least 33% of investors either had commitments to or interest in investing in debt/distressed funds, to take advantage of the illiquid credit markets.

In October 2008, the San Francisco City and County Employees' Retirement System decided to focus on funds targeting distressed property opportunities for the remainder of 2008 and 2009.

Similarly, the School Employees' Retirement System of Ohio decided towards the end of 2008 to extract redemptions from some of the core real estate funds and place the capital into value-added and opportunistic vehicles.

Of those investors surveyed, 59% are still below their allocations to private equity real estate, while 23% are level and 9% are above their allocation, suggesting many investors have equity available to allocate make new investments.

Preqin's monthly real estate report warned, however, those committed or looking to invest will adopt a more cautious and selective approach as a result of being overweight in their real estate allocations.

The survey showed 38% of investors currently have less money for private equity real estate because of the decline in their total assets. Many are therefore expected to wait until the second half of 2009 when more capital becomes available.

Preqin said it is unlikely to see investors adding to their direct or listed real estate portfolios in the coming months.

"We've found that a lot of investors may find it difficult to manage their direct real estate portfolio because of the difficult times and what is easier for them to do is invest in a private equity fund where that property portfolio is managed," said Fogarty.

"With a lot of the private equity funds, the returns that they are looking for are attractive to these investors and that is why they are reducing allocations," he added.

Around 78% of respondents said they have no plans to increase their real estate allocations, while 4% said they might and only 18% said they would.

Set up in 2002, Preqin provides data and analysis for the alternative asset class industry.

If you have any comments you would like to add to this or any other story, contact Poppy Sketchley on + 44 (0)20 7261 4629 or email poppy.sketchley@ipe.com

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