Sovereign wealth funds and central banks prefer real estate as an alternative investment, Invesco’s fourth annual Global Sovereign Asset Management Study found.
The study of 77 sovereign investors and reserve fund managers across the globe — representing $8.96 trillion of assets — found allocations to real estate rose to 6.5% in 2015, from 3% in 2012.
Investment in other alternatives also increased, but at a slower pace. Infrastructure investments rose to 2.8%, from 1.4% in 2012, while private equity allocations averaged 4.5%, up from 3.1%.
Alex Millar, head of Europe, Middle East and Africa sovereigns, Middle East and Africa institutional sales at Invesco, said in a telephone interview that part of real estate’s popularity is due to those investments having fewer obstacles. “What jumped out to me was the deployment times,” said Mr. Millar, citing the study’s findings that the average time for sovereign investors to deploy capital in real estate was two years, vs. 2.3 years for private equity investments and 3.5 years for infrastructure. While real estate has attractive characteristics, “the relative ease of investing in real estate … is helping to fuel its growth,” Mr. Millar said.
Sovereign investors also said there is a greater number of credible global money managers — and a long list of developers and operators — with which to partner in real estate investments.
In terms of destination, the U.S. emerged as the favored developed market for investment, which Mr. Millar said is “not that much of a surprise. The attractiveness of the U.S. from a sovereign perspective was interesting … and we did also pick up that (investors) were perhaps bullish on infrastructure opportunities in the U.S. particularly.”
The U.S. replaced the U.K. as the preferred developed market. The country’s more investment-friendly policies — such as the 2016 introduction of an exemption for qualified foreign pension funds from the Foreign Investment in Real Property Tax Act on real estate purchases — were highlighted as a positive.
Sovereign investors also are shifting toward frontier markets, such as emerging Asia and Africa, and away from emerging markets such as Brazil, Russia and China. Allocations to emerging Asia increased to 2.3% in 2015 from 1.6% in 2014; and increased to 0.9% in Africa, from 0.6%.