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80% of institutional investors setting sights on core real estate – Preqin

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GLOBAL - Pension funds are looking to increase their real estate investments, particularly in low-risk core real estate, as allocations to the asset class approach their targets, according to Preqin.

Andrew Moylan, research manager for real estate data, said: "Fund managers are looking to make new real estate investments in the future."

According to Preqin, 82% of all institutional investors and 65% of private sector pension funds are interested in core real estate funds as they seek to add more low-risk investments.

Currently, the average real estate allocation remains 8%, which is short of 9.3% long-term target.

However, Moylan said the shift would happen gradually, adding: "Real estate investments are not going to increase all of sudden."

Private real estate funds remain most popular, with nearly 81% of investors preferring them over two other categories - direct real estate (57%) and listed real estate (33%).

Overall, the fundraising environment, though improving compared with the last two years, continues to be "very difficult", Moylan said.

"While there are funds that are successful, there are also a lot that are suffering from the intense competition," he said.

"Competition is fairly intense as the number of funds out there looking for investors have tended to increase over the past two years."

According to Preqin, currently there are 440 private real estate funds planning to raise $150bn (€110bn) on the road, more than three times that raised in 2010.

The number of funds reaching their target increased in 2011 to 51%, compared with 48% in 2010 and 15% in 2009.

To use another indicator of the fundraising environment, 96% of the funds reached their first close in within 12 months in 2011 and 2010, up from 79% in 2009.

Yet with more investors coming into the market, combined with weak demand, fund managers will find it hard to raise money despite signs the fundraising environment is improving.

"The issue is that, as the fund managers are chasing the same investors, it is becoming difficult because there simply isn't demand from institutional investors," Moylan said.

Asked if investors were bringing in more money, he said: "Institutional investors are looking to making new commitment, but there is not going to a dramatic increase in investor appetite."

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