Large institutions are turning increasingly to segregated mandates to ensure the best deals in real assets, according to Preqin.
The number and value of bespoke mandates in unlisted real estate rose significantly in 2013 and 2014 compared to longer-term trends, the data company reported.
A quarter of all deals closed in this sector in the first five months of 2015 were segregated, a greater proportion than for the whole of 2014, which Preqin said was “indicative of the growing prominence of separate accounts in the industry”.
“The growth in separate account use represents a change in the way investors access the real estate asset class,” said Andrew Moylan, head of real assets products at Preqin. “Larger investors are utilizing their size to put large amounts of capital to work, gain greater control of investment decisions and negotiate better terms.”
Preqin found that 29% of investors “will invest in separate accounts” and a further 11% would “consider” this route to market, when it quizzed asset owners at the end of last year. In 2011, 12% said they would consider them but just 21% said they would definitely use separate accounts.
“From an investor’s perspective, separate accounts offer greater control over their real estate investment programs, a higher level of exposure to desired assets, more favourable fees and other terms, and the ability to put large sums of capital to work,” Preqin’s report stated.
From a fund manager’s perspective, closer client relationships and larger long-term capital commitments “may outweigh the potential reduction in fee income”, the report said.
In 2014, 45 separate accounts were set up for real estate assets with $17.8 billion invested in aggregate. So far in 2015 $3.8 billion has been invested in 13 mandates.
Among the most notable deals in the past 18 months were two deals between the Canada Pension Plan Investment Board and property investment specialist Goodman Group. The two organizations have invested $2 billion in a Chinese logistics joint venture and another $2 billion in a North American industrial and logistics project.
In Europe, the Norwegian Government Pension Fund Global set up a $1 billion venture with Prologis, a real estate investment trust, as it continued to allocate 5% of its $887 billion portfolio to global property. Dutch pension manager APG committed £440 million ($680 million) to a property portfolio with LaSalle Investment Management.
Preqin reported that three US public pensions—Los Angeles, North Carolina, and Arizona—were planning significant investments into real estate in the near future using the segregated mandate route to market.
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