MIPIM 2013: KPMG sees pooled funds coming back

After being maligned by investors following the start of the global financial crisis, a survey presented by the professional services firm at the MIPIM conference painted a more positive picture for commingled real estate funds.

Delegates at a presentation at the world’s largest property conference heard how investors once again are favoring pooled investment funds for real estate opportunities.

In a presentation on the opening day of the week-long event in Cannes, France, professional services firm KPMG presented the results of an investor survey that revealed how 33 percent of respondents felt the most attractive vehicles through which to acquire property currently are pooled funds. That represented the most popular investing method, on par with direct investing or via separate accounts.

The finding marks something of an indicative comeback for commingled investment funds, which were widely maligned following various poor performances immediately after the start of the global financial crisis. In their place, some investors have switched to direct methods of buying and that was reflected in KPMG’s survey, which found that 41 percent of respondents currently were invested in such ways.

However, the notion that investors are willing to once again embrace pooled funds to a more meaningful degree will be received as something of a boon for the sector, which typically enjoys more investing discretion when raising commingled capital.

Stefan Pfister, partner and head of real estate for Europe at KPMG, admitted the finding was surprising. “In comparison to last year’s survey, this would indicate a marked shift in preferences,” he said. “When looked at from a risk perspective, the attraction of pooled funds is the ability to acquire more properties than through direct investment and to achieve a more diversified portfolio of underlying assets – thereby sharing risk with other investors in the fund.”

Pooled funds have often suited opportunistic strategies where managers oftentimes must maneuver quickly, something typically harder to do when seeking permissions from investors as often it the case in vehicles like separate accounts or via joint venture partnerships. Accordingly, KPMG also found that 32 percent of investors preferred opportunistic investing options in addition to investing into core real estate.

Pfister said: “The survey results highlight the twin perspective of continuing to invest in core while also looking for value-added returns – so seeking to diversify the investment portfolio in terms of risk, volatility and returns.”

According to PERE’s Capital Watch, capital raising for commingled value-added and opportunistic private real estate funds increased to $50.7 billion last year, up by 100 percent on the $25.3 billion raised just two years earlier. While much of Blackstone’s record $13.3 billion capital raising for its seventh global fund accounted for almost one-fifth of all the capital raised last year, the total still underlines a returning confidence in such vehicles.