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Sovereign Wealth Funds Want To Spend Another $276B On Real Estate


Sovereign wealth funds are below their target allocation to real estate and still want to pump vast amounts of capital into the sector.

Research from private funds analysis firm Preqin showed sovereign wealth funds want to increase their allocation to real estate from an average of 7.3% to 11%. With sovereign funds having total assets of $7.5 trillion, that is a total of $276B earmarked for real estate investment.

Examples Preqin cited include the $33B State Oil Fund of Azerbaijan, which wants to double its allocation from 5% to 10%.

The research also found that most sovereign funds prefer to invest directly rather than through unlisted funds or buying shares in listed companies; that North America and Europe are the most popular investment destinations, with two thirds wanting to invest there; and that sovereign funds are increasingly attracted to alternative sectors like student housing and hotels because of the higher yields. The highest proportion described themselves as core investors.

It will not be easy for these funds to meet their ambitions, Preqin pointed out. “While enjoying benefits unique to sovereign wealth funds, these investors are faced with the same challenges as many other institutional investors: prime real estate assets are short in supply, which saw the aggregate value of private equity real estate deals completed in 2017 reach a record $287B,” it said.

Overall 2017 was a great year to be a sovereign wealth fund, with the sector seeing assets increase by 13%, or $886B. Preqin said there are now 78 sovereign wealth funds active, and only 62% of them invest in real estate.