Already a significant player in the real estate space, sovereign wealth funds (SWFs) are set to further increase their allocation to real estate.
Preferred sectors include core office and retail assets as well as open-ended funds and listed REITs (real estate investment trusts) with allocations to steadily increase over the foreseeable future.
According to PwC, sovereign investors held US$11.3 trillion in 2015, a figure that’s predicted to grow to US$15.3 trillion by 2020. In 2015, 59 percent of sovereign wealth funds invested in real estate. By 2017, this share has reached 63 percent.
SWF’s allocations to alternatives – which includes real estate and infrastructure – have increased significantly across most portfolios, according to Nick Wilson, from JLL’s Asia Pacific Capital Markets Research team, noting that drivers include low correlation to traditional asset classes, such as equities and fixed income, and the potential for high risk-adjusted returns
Based on Preqin data, 74 percent of global sovereign wealth funds now invest in at least one alternative asset class with real estate and infrastructure the most favoured asset class.
In an August 2017 report, the firm cited alternative assets such as real estate as long-term investments and hence “suitably aligned with sovereign wealth funds’ investment horizons.” These funds are also able to “afford the illiquidity associated with these types of investments,’ it said.
The shift towards direct investment
The report also noted that, while these funds have traditionally relied on external fund managers to help with real estate investments, many are beginning to lead their own direct deals in an effort to boost yields and cut costs.
The Government Pension Investment Fund of Japan…