SWFs eye private real estate funds

New research reveals many sovereign wealth funds (SWFs) have entered the private fund arena and more are planning to invest through private equity funds in the future. According to analysis from the 2009 Preqin Sovereign Wealth Fund Review, which contains investment plans for all SWFs active in the real estate sector, 13 per cent invest only on an indirect basis, while 26 per cent invest only in direct real estate.

Australia‘s Future Fund and Wyoming State Treasurer’s Office are among the 13 per cent investing exclusively in the indirect market, through private real estate funds.

“It is likely that there will be an increase in the number of sovereign wealth funds becoming involved in real estate both directly and indirectly, and with the credit crunch creating opportunities in the more niche sectors, such as debt and distressed assets, sovereign wealth funds could also serve to provide capital in a market that is currently lacking bank finance,” notes the report by the London-based alternative investments researcher.

The research found 62.5 per cent of SWFs are investing in real estate in some shape or form, and 10 per cent are considering adding such investments to their portfolio. Just over a quarter (27.5 per cent) of SWFs do not invest in real estate directly or indirectly.

The larger funds are more likely to invest in property, with 67 per cent of those with assets under management of more than US$250 billion active in the real estate market, including the $750 billion Abu Dhabi Investment Authority.

Only 20 per cent of SWFs with less than $1 billion in assets invest in real estate.

Those SWFS that prefer direct exposure are based predominantly in Asia and MENA (Middle East and North Africa). Dubai International Capital only invests directly in the MENA region, and according to Preqin, was an anchor investor in Ishraq Gulf Real Estate Holdings, a private company that was established to roll out the “Express by Holiday Inn” brand throughout the Gulf Cooperation Council (GCC) region.

SWFs that are most likely to invest in real estate are located in North America and MENA. All SWFs in North America allocate a portion of their assets to property, compared to 92 per cent of SWFs based in MENA.

Preqin found two-thirds of Australasian SWFs invest in real estate, followed by 50 per cent of European SWFs and 38 per cent of Asian SWFs. No funds in Africa (exluding MENA) or Latin America and the Carribean are known to allocate to real estate.