Lead Article Investment Consultants’ Views on Real Estate in ......Proportion of investment consultants advising a real estate allocation of 6-10% of total assets. 32% Proportion

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Lead Article Investment Consultants’ Views on Real Estate in 2016

Real Estate Spotlight / March 2016

Investment consultants are vital gatekeepers of investor capital, with 60% of institutional investors using an investment consultant to advise on, or to actively manage, their exposure to real estate. In Q4 2015, Preqin conducted interviews with more than 40 consultants to discover their views on the market and their outlook for 2016. Overall, investment consultants are largely satisfi ed with the returns their clients have received from their alternative assets investments in the past year. More consultants felt real estate returns had exceeded expectations than any other alternative asset class, although the proportion stating returns had not met expectations was higher than for private equity and private debt (Fig. 1).

Recommended Allocations

Just 3% of consultants do not recommend a property allocation for their clients, with the majority (57%) of respondents recommending that investors place between 6% and 10% of their total assets in real estate (Fig. 2). The 86% of consultants that recommend at least a 6% allocation to real estate is far higher than any other alternative asset class, although almost one-quarter of consultants advise a hedge fund allocation of more than 15%. Only 9% recommend a real estate allocation on this level. One-third of respondents recommend clients increase their real estate allocation in 2016, while only 8% advise a lower level of real estate exposure (Fig. 3).

Strategy Allocation

As shown in Fig. 4, higher risk/return profi le strategies will be increasingly recommended by investment consultants in 2016, directing more capital towards value added (25% of respondents) and opportunistic strategies (20%). Twenty percent are also advising an increase in allocations to real estate debt strategies in 2016. Concerns over pricing for prime assets may be affecting some consultants’ appetite for core real estate, with 14% advising their clients to invest less capital in core real estate strategies in 2016 than they did in 2015. Perhaps unsurprisingly, given their

own expertise in fund selection, real estate funds of funds remain the least recommended strategy among investment consultants: 55% did not recommend the strategy in 2015 and will do the same in 2016.

Regional Allocations

As shown in Fig. 5, the majority of surveyed investment consultants will continue to advise their clients to invest in the more developed and liquid real estate markets of North America and Europe, with no consultants recommending a reduction in capital to vehicles focused on those areas. Fundraising has been strong for Europe-focused funds in 2014-2015 and consultants continue to see attractive opportunities in the region. The majority of investment consultants will not recommend investment in Latin America-, Africa- and Middle East-focused real estate in 2016.

Investment Consultants’ Views on Real Estate in 2016

33%

58%

8%

Increase Allocationto Real Estate

Keep Allocation toReal Estate theSame

Reduce Allocationto Real Estate

Fig. 3: Investment Consultants’ Recommendations for 2016 Compared with 2015

Source: Preqin Investment Consultant Survey, November 2015

3%

19% 24%14% 12%

52%

11%

36% 27%57% 61%

40%

57%

25%24%

23% 21%

8%

20% 8%

3% 6%6%

15%

3%11% 9%

3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Re

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sta

te

Priva

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ity

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e F

un

ds

Infr

ast

ruc

ture

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t

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l Re

sou

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s

More than 20%

16-20%

11-15%

6-10%

1-5%

0%

Fig. 2: Investment Consultants’ Recommended Allocations to Alternative Asset Classes


Pro

po

rtio

n o

f R

esp

on

de

nts

19%8%

73%

29%

9%

52%

58% 75%

21%

65%

78%

43%

22% 17%6% 6%

13%4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Re

al E

sta

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Priva

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s

Infr

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urc

es

ExceededExpectations

MetExpectations

Fallen Short ofExpectations

Fig. 1: Investment Consultants’ Views on the Performance of Alternative Assets in 2015


Pro

po

rtio

n o

f R

esp

on

de

nts

In an exclusive excerpt from the 2016 Preqin Global Real Estate Report, we present the results of our investment consultant survey, which looks at their views and recommendations for 2016.

View the full edition of Spotlight at: https://www.preqin.com/docs/newsletters/RE/Preqin-Real-Estate-Spotlight-March-2016.pdf

https://www.preqin.com/go.aspx?lid=17037

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35%

45%

55%

60%

60%

60%

80%

90%

45%

45%

40%

35%

40%

40%

15%

10%

20%

10%

5%

5%

5%

0% 25% 50% 75% 100%

Firm Success Raising Capital withPrevious Funds

Returning Investor Base

Sizeable GP Commitment to Fund

Firm Presence in Markets They AreLooking to Invest in

Attractive Fund Terms/Fees

Successful Performance TrackRecord at Firm Level

Successful Performance TrackRecord at Team Level

Experience/Expertise with FundStrategy

Very Important Somewhat Important Not Important

Fig. 7: Investment Consultants’ Perception of the Most Important Factors When Selecting Real Estate Managers


Proportion of Respondents

Routes to Market

Interestingly, investment consultants appear to be recommending a return to the commingled fund model in 2016 (Fig. 6): 40% of surveyed consultants will advise their clients to invest more capital through pooled funds. Refl ecting the higher barriers to entry for investors, half of respondents will not be advising clients to invest in separate accounts and direct investments over 2016. However, of those consultants that will recommend these structures, none will recommend less investment in separate accounts and only 5% will advise less direct investment. More liquid structures such as REITs look to be out of favour among consultants: 20% of respondents suggested they will recommend clients invest less in this structure over the next year.

Fund Selection

When conducting due diligence on fund managers, consultants look most closely at the fi rm’s experience and expertise with the relevant strategy, and the track record of the team managing the fund, with 90% and 80% of respondents respectively stating these factors to be the most important (Fig. 7). Having a successful track record at fi rm level, a competitive fee structure and people on the ground in markets they will invest in were also key considerations, with 60% each stating these factors as very important.

Key Issues

Macro issues are an important consideration for consultants, with 72% considering the economic environment and potential impact on real estate markets as a key issue, while 67% stated the current availability of attractive investment opportunities was a concern (Fig. 8). Interestingly, while institutional investors are largely satisfi ed with the fees they are paying fund managers (see page 77 of the 2016 Preqin Global Real Estate Report), 45% of consultants consider fees as an important issue.

Regulation was not considered an important issue by many consultants (23%). When asked specifi cally about the impact of regulation on their business, views were mixed: 38% felt it had been negative, 30% felt it had had no impact and 32% said it had positively impacted them.

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Lead Article Investment Consultant Outlook for 2016


5%

5%

5%

5%

5%

10%

15%

19%

19%

20%

20%

25%

30%

35%

30%

67%

62%

45%

45%

55%

5%

5%

14%

10%

10%

55%

45%

50%

14%

5%

35%

25%

5%

0% 20% 40% 60% 80% 100%

Fund of Funds

Distressed

Secondaries

Core-Plus

Core

Debt

Opportunistic

Value Added

Did Not Recommend in 2015, but WILL Recommend in 2016

Invest More Capital than in 2015

Invest the Same Amount of Capital as in 2015

Invest Less Capital than in 2015

Did Not Recommend in 2015, and WILL NOT Recommend in 2016

Fig. 4: Breakdown of Investment Consultants’ Recommendations for 2016 by Strategy


5%

5%

5%

5%

5%

10%

10%

10%

32%

19%

29%

24%

33%

50%

48%

81%

5%

62%

62%

52%

30%

4%

0% 20% 40% 60% 80% 100%

Middle East

Africa

Latin America

Asia

Europe

North America






Fig. 5: Breakdown of Investment Consultants’ Recommendations for 2016 by Region


5% 10%

5%

10%

10%

40%

15%

45%

35%

40%

50%

20%

5%

70%

30%

50%

50%

10%

0% 20% 40% 60% 80% 100%

Joint Venture

REIT

Direct Investment

Separate Account

Commingled Fund






Fig. 6: Breakdown of Investment Consultants’ Recommendations for 2016 by Structure







14%

19%

23%

23%

26%

44%

45%

60%

67%

72%

0% 20% 40% 60% 80%

Consolidation

Volatility

Regulation

Transparency

Liquidity

Exit Opportunities

Fees

Performance

Investment Opportunities

Economic Environment

Fig. 8: Investment Consultants’ Perception of the Most Important Issues in the Real Estate Market



3%

6%

9%

20%

29%

29%

31%

37%

49%

66%

0% 20% 40% 60% 80%

Other

Retaining Clients

Increased Demand from Investors forSophisticated Products

Increased Liquidity Demand

Client Pressure on Fees

Competition with Other Consultants

Adapting to Regulatory Changes

Attracting New Clients

Meeting Client PerformanceExpectations

Identifying Attractive InvestmentOpportunities

Fig. 9: Investment Consultants’ Views on the Biggest Challenges Affecting Their Business in Relation to Their Activity in Alternative Assets



Key Facts

57%Proportion of investment consultants advising a real estate allocation of 6-10% of total assets.

32%Proportion of investment consultants advising clients to invest more capital in Europe over

2016 than in 2015.

Number of investment consultants advising on real estate that are profiled on Preqin’s Real

Estate Online.

310

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Lead Article Investment Consultant Outlook for 2016


The factors that investment consultants view as the biggest challenges for their business in 2016 highlight the concerns regarding the pricing of real estate assets and the impact this has on their ability to source attractive opportunities for their clients (Fig. 9.9). Additionally, meeting client performance expectations and attracting new clients are signifi cant challenges for many consultants.

Outlook

Overall, investment consultants’ outlook for real estate in 2016 remains positive, with the majority of consultants advising clients to maintain or increase their allocation to the asset class over the coming year. Higher risk/return profi le strategies in the more developed and liquid markets continue to feature heavily in the investment advice provided by consultants, with many looking at the commingled fund model as the optimal route to market.

2016 Preqin Global Real Estate Report

This article is an extract from the 2016 Preqin Global Real Estate Report, the most comprehensive review of the industry available today.

Assembled by our dedicated teams of multilingual analysts based around the world, this report enables professionals to understand the latest trends, access valuable historical data and discover the most important players in every area of the industry.

Topics covered include:

• Fundraising• Institutional investors• Fund managers• Performance• Industry AUM and dry

powder• Commentary from key

industry fi gures• Placement agents• Investment consultants• Regional breakdowns

For more information about the report, to view sample pages or to purchase a copy, please visit:

www.preqin.com/grer

alternative assets. intelligent data.

ISBN: 978-1-907012-89-1$175 / £105 / €150www.preqin.com

2016 Preqin Global Real Estate

Report



www.preqin.com/grer

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Lead Article Investment Consultants’ Views on Real Estate in ......Proportion of investment consultants advising a real estate allocation of 6-10% of total assets. 32% Proportion