At the Global Investor Forum in Los Angeles last month, investors in the audience were given a polling question on their real estate allocations to funds versus direct investing. The two largest groups of respondents represented opposite ends of the spectrum: 43 percent said that 25 percent or less of their real estate portfolio was allocated to funds, while 33 percent said they put 100 percent of their real estate allocation into funds.
The same question was then posed to the four panelists onstage. Two of the speakers that said they were increasing their allocations to real estate funds previously had almost exclusively invested directly in the asset class. “We’ve had a legacy portfolio of direct investments, but we’re basically moving all towards funds at this point,” said one smaller investor.
The other speaker said his organization had a preference for direct investing. “We just used funds in the last few years to get a higher return, because our direct portfolio is really a core-based portfolio,” he said. Being so heavily weighted to core hurt the institution as the real estate market rebounded, the investor explained: “Because we’ve been core for so long, we missed some of the rise in the market.”