GLOBAL - Sovereign Wealth Funds (SWF) will increase their property exposure to 15% over the next few years, German real estate company DEGI estimates in an analysis of the market.
At present, it is thought over 40 SWFs worldwide have between 4% and 11% of their portfolios in real estate but DEGI forecasts the funds will invest $150bn (€96bn) in that asset class by 2010.
The combined assets of all SWF is said to have reached $3.3trn in 2007 but their value is expected to have increased to $5trn by 2010.
DEGI bases its estimates for real estate investments on "the large number of property transactions" by these funds as well as announcements by funds such as the $200bn China Investment Corporation (CIC) or the $61.5bn Australian Government Future Fund which reveals they have started preparations for real estate investment.
At the beginning of this year, the $396bn Norway Government Fund - Global announced its foray into real estate investments. (See earlier IPE Real Estate.com story: Norway pension fund allocates 5% to real estate)
Commenting on the development DEGI pointed out "the subprime crisis has shown that government funds can act as stabilisers as they can invest when others lack liquidity".
The real estate company argued criticism regarding lack of transparency and suggestions of politically-biased investments by SWFs has to be countered either by a code of conduct or self-regulation by the funds themselves.
"Government funds have a clear interest in diversifying their portfolio into real estate not least because of their rapid growth," according to DEGI.
The funds have shown themselves to be mainly looking at established and stable office sector real estate markets in western countries, i.e. core investments with a low risk profile.
"Because of their investment power, government funds can and will buy both broadly diversified real estate portfolios as well as single large objects," suggested the real estate manager.
DEGI noted SWFs have only played a small role on the German real estate market so far as the Government of Singapore Investment Corporation (GIC) bought an office building in Munich for €300m in 2006 and the Abu Dhabi Investment Council purchased 3% of the listed housing company Colonia Real Estate.
According to figures compiled by DEGI, around 62 % of all SWFs invest in real estate, while 95% hold direct investments and 69% enter the market indirectly.
In absolute figures, the largest real estate investor is the Abu Dhabi Investment Council with $70bn in real estate.
But as a share of the portfolio, the largest property holders are the Canadian and the Alaskan SWFs with 11% and 10% allocations respecively to this asset class.