Separate accounts business hit record high in 2014: Preqin

Capital invested in private real estate separate accounts reached an all-time high in 2014, according to a new survey by fund data provider Preqin.

In total, investors awarded some $17.8 bn (€16.6 bn) to 45 private equity real estate separate accounts throughout 2014, the highest annual amount on record. This is up from the $16.1 bn awarded to 48 real estate separate accounts throughout 2013.

Up to 18 May this year, Preqin tracked 13 real estate separate accounts accounting for a combined value of $3.8 bn. This represent 26% of funds that have closed so far this year and 9% of the total capital raised.

'The growth in separate account use represents a change in the way investors access the real estate asset class,' noted Andrew Moylan, Head of Real Assets Products. 'Larger investors are utilizing their size to put large amounts of capital to work, gain greater control of investment decisions and negotiate better terms. Separate account structures are likely to continue to grow in prominence with rising investor appetite and fund managers offering more separate accounts to investors.'

Investor appetite for separate account use has been growing steadily in recent years, with 29% of real estate investors globally looking to invest in separate accounts as of the end of 2014, compared to 21% of investors as of the end of 2011.

Focus on core
As a proportion of all closed-end real estate fundraising in 2014, separate accounts made up 21% of the total number of real estate funds raised throughout the year, and 18% of the total capital raised – the highest proportion of fundraising it has accounted for in any year.

As separate accounts become more widespread, they will constitute growing proportions of many investors’ overall real estate portfolios, Moylan said. 'However, given the additional resources required to manage, separate accounts are likely to remain the preserve of the largest and most sophisticated investors in the asset class,' he added.

Of all the real estate separate accounts that have been awarded since the start of 2012, the greatest proportion target core assets. These mandates have raised $17.1 bn which represents 39% of all separate account capital raised over this period.

Public pension funds are the most prominent investor type that have utilized separate accounts, with this investor type accounting for a third of all investors with a preference for this structure. This is followed by private sector pension funds which account for 24%.

Separate accounts offer many advantages over more traditional pooled fund investments for both investors and fund managers alike, Preqin said. From an investor’s perspective, they provide greater control over their real estate exposure, more favourable fees and fund terms, and exposure to more desirable assets. For fund managers, they provide the opportunity to build stronger relationships with investors, and gain large commitments from some of the world’s most prominent investors.

Over half - or 54% - of the fund managers surveyed by Preqin at the end of 2014 suggested they would offer more separate account opportunities to investors in 2015. This compares to only 1% that plan to offer fewer opportunities.

Notable separate accounts awarded in 2014 include the $2 bn Goodman North America Partnership with the CPP Investment Board, and the $750 mln Aevitas Property Partners fund with the Washington State Investment Board.