Increased capital allocation to Real Estate Private Equity

January 28, 2022

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Capital allocation to the private equity sector is growing as institutional investors and private investors such as family offices and HNWI are allocating an increasing portion of their capital to Private Equity.

A study conducted by Blackrock reported that 55% of Family Offices are expected to grow their exposure to this asset class.

Many are seeing the Private Equity sector as a preferred source of opportunity with more than half (52%) of family offices seeing it as a way to accessing investments that aren’t otherwise available according to the UBS GFO Report 2021.

Between 2011 and 2015, assets under management in private equity and venture capital strategies, including growth equity strategies, increased $2.7 trillion or 5% annualized. Meanwhile, hedge funds and other illiquid assets under management grew at a rate of around 10% annualized.

However, starting in 2016, private equity and venture capital strategies saw their assets under management grow from $3 trillion to $4.6 trillion for a 12% annualized rate. On the other hand, hedge funds and other illiquid assets under management slowed to an annualized rate of 5% to 6% according to Forbes.

One of the factors leading to this growth of capital allocation is the difficulty of hedge funds to overperform indexes such as the S&P 500. As an example, only 10 to 20% of hedge fund managers overperformed the S&P 500 in 2021.

A non-negligible factor to this transfer of capital from public to private equity is the fact the number of publicly traded companies has decreased significantly in the last four decades, and the number of listed companies in the US has dropped nearly 50 percent since 1996 according to American Investment Council

Which leads us to the sector of real estate private equity, the Global real estate investment managers have reached 3.3 trillion euros in AUM by the end of 2020 more than tripling from the 0.9 trillion euros in 2009 according to Inrev.

The beauty of Real Estate Private Equity is its ability to pool large sum of capital together giving the opportunity to private investors to invest alongside institutional investors allowing them to access opportunities and reap benefits that would have not been possible to do directly while allowing institutional investors to passively invest their capital in hard assets and being able to control their risk management by choosing the right fund based on their criterias and risk appetite.

Written by Tugdual Chitrit

Date: Janv 28 2022


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