Consolidation is driving growth in the real estate fund sector globally, with the top ten fund managers globally accounting for a whopping 36.5% of total AUM, according to the INREV/ANREV/NCREIF Fund Manager Survey 2015, which was published this week.

Consolidation is driving growth in the real estate fund sector globally, with the top ten fund managers globally accounting for a whopping 36.5% of total AUM, according to the INREV/ANREV/NCREIF Fund Manager Survey 2015, which was published this week.

‘This survey clearly reflects the continuing domination of the large players and an enduring trend for consolidation. It’s a trend that’s been driven by the economies of scale, or the desires to tap into new markets and expertise, and it’s one that is likely to accelerate rather than unwind in the immediate future,’ said Henri Vuong, director of research and market information at INREV.

Consolidation in the sector is set to continue because ‘it’s more efficient for larger players to acquire smaller ones than to grow organically,’ Voung told PropertyEU. ‘Small niche players have their place, though. If they’re successful and grow to be medium-sized players, they’re going to attract the attention of larger players – and that means further consolidation,’ she said.

This year’s survey is the first global version of the survey, capturing data from 164 respondents, who are variously members of INREV, ANREV and NCREIF. The results are dated to 31 December 2014.

Canadian asset manager Brookfield Asset Management has knocked US powerhouse the Blackstone Group off the top spot, with €103.8 bn of real estate assets under management (AUM) in total. The Blackstone Group ranks second this year with €99.5 bn of AUM. Meanwhile, CBRE Investors holds onto third place with €74.5 bn of AUM. These three fund managers have consistently held the top three spots since 2012, according to the survey. TH Real Estate, formerly TIAA Henderson Real Estate, bagged fourth place, with €67.70 mln.

Commenting on the survey, Mike Sales, managing director of TH Real Estate in Europe, said:

‘Scale plays an important part in success but performance, access to markets, and client service, are critical. TH Real Estate is a global enterprise which benefits from local knowledge and ‘feet on the ground’ in multiple regions, so we not only see the best opportunities in the markets where we invest, but also deploy our capital in the most prudent way possible.’

Such has been the growth in the fund management sector in recent years that a manager with less than €45 bn of AUM would now struggle to land a place in the Top 10. This is partly due to consolidation in the sector, given that 22% of fund managers have been involved in mergers of acquisitions in the past decade.

Total real estate AUM globally increased by 28.6% last year to €1.8 trn. Interestingly, non-listed real estate funds remain the most popular product – irrespective of manager size - accounting for 60.5% of total AUM in 2014. Institutional investors account for 85.4% of capital flowing into non-listed direct real estate vehicles. More than half of that is from European investors. The remainder is split broadly equally between investors from the Asia-Pacific region and North America. Capital from investors in the Asia-Pacific region has increased significantly since 2013, accounting for almost 23% in 2014, up from 14.2% a year earlier.

Pension funds continue to account for the lion’s share of capital or 42.8% of the institutional client base in 2014, down slightly from 50.4% in 2013. Insurance groups remain the second largest group of institutional investors, accounting for 14.4% of the market. However, their share increased fivefold between 2011 and 2014. Fund of fund managers have also seen their share of the pie grow to 6.7% in 2014, up from just 2.7% in 2012. High net worth individuals and family offices also saw their share rise to 7.5% last year, up from 4.9% a year earlier.

Different sized fund managers also offer investors different style strategies. Large fund managers invest 63.9% of their total AUM in core strategies, whereas smaller fund managers in the lower quartile invest 87.7% of their total AUM in non-core strategies. For example, separate accounts comprise 22% of AUM for the upper quartile of fund managers but just 11% for the lower quartile. Top quartile fund managers also have a higher allocation to listed real estate funds and public REITs, at 15%, compared to just 5% for lower quartile managers.