Investors re-evaluate strategy as UK core funds outperform: Preqin

Private equity real estate investors are re-examining their strategy and leaning towards the core segment following the poor performance of many of their investments and the rebound in one-year median returns for UK core funds.

UK core real estate funds have recovered at a much faster rate than other private equity real estate strategies, and recorded positive one-year medium internal rates of return (IRR) of 13.1% in March 2010, according to London-based fund tracking service Preqin. 'It is important to bear in mind that these are relatively short-term performance measurements and there is no guarantee that another downturn in UK property prices will not occur,' the firm cautioned.

Although real estate fund performances in general are improving, with one-year returns to March 2010 at -7.% compared to -21.3% to March 2009, returns are still in the red. In addition, many other asset classes have seen their performances rebound at a faster rate than real estate.

The severe decline in the performance of real estate funds since the onset of the economic downturn, Preqin, said, has led to a large number of investors re-evaluating their real estate strategy, with a number increasingly looking toward core.

Many institutions are indicating that they expect to focus on core investments in the immediate future. However, some market watchers argue that a move to core now would be too late. Preqin: 'Certainly many managers of opportunistic or distressed funds on the road would suggest that the current market offers one of the best buying opportunities of a generation'.