Once rare shake-ups of the top investors could become the new normal

For the second year running, a new investor graced the top of PERE’s annual Global Investor 100. Now in its twelfth year, the ranking only saw a change in the top spot for the first time last year. But the years of a relatively static GI 100 could be a thing of the past.

Significant movements could be seen throughout this year’s lineup. Six investors climbed more than 10 places, including one that leaped into the top 10 on the back of an 88 percent increase in its real estate allocation over the past year. Part of the shake-up can be attributed to real estate’s maturity as an asset class and its role as an inflationary hedge. Both factors appeal to investors, as demonstrated by the GI 100’s median allocation to the asset class growing to 8.1 percent from 7.6 percent last year.

However, the current macro environment suggests more upheaval could be in store for the ranking in the coming years. Rising interest rates have led to the double-whammy of declining yields and more expensive debt, keeping many equity buyers on the sidelines until a floor on real estate pricing is established. The denominator effect has also hit many portfolios, leaving some investors overallocated to real estate and therefore forced to offload some of their property holdings.

But one investor’s challenge can be another investor’s opportunity. Sovereign wealth funds have been big allocators of capital, particularly those in the Middle East and Asia, representing four of the top 10 in this year’s GI 100. Singaporean sovereign wealth fund GIC grew its real estate assets by almost $28 billion to place fourth on the list. Qatar Investment Authority also climbed into the top ten with a double-digit billion dollar increase to its portfolio. That spending from SWFs is likely to continue, especially since many of these deep-pocketed institutions will be able to take advantage of the current debt-restrained capital markets to increase their property allocations, according to conversations with market participants.

One investor to keep an eye on is the National Pension Service of Korea, which along with other large Asian investors, will continue to deploy capital at large ticket sizes because they have money that needs to be invested, one Korean broker told PERE. Japanese investors also see it as a good time to invest because the queues for deals are shorter than they have been. Hideto Yamada, head of real estate at the country’s Government Pension Investment Fund, told delegates at PERE’s recent conference in Japan that he expected to see less competition for assets overseas, particularly from highly levered buyers.

One US public pension on the GI 100 likewise told PERE that his organization has recently been doing more direct investments as levered competitors have stepped aside. He noted that being an all-cash buyer gives the pension an advantage on deals.

Market volatility is expected to remain elevated for the foreseeable future as central banks consider additional rate hikes to combat historically high levels of inflation. Investing throughout the next 12-18 months will not be for the faint of heart, but we can be sure that some groups will continue to invest throughout the volatility, while others will instead be focused on selling assets. Check back this time next year to see how those investment decisions play out against each other.