Our sister publication NREI looks at the prospects of sovereign wealth funds investing in commercial real estate.
Guy Langford, an accounting principal with Deloitte's mergers and acquisitions services practice, noted that the assets managed by these funds have the potential to skyrocket to $12 trillion by 2016, up from $3 trillion currently. Compared with other investment sources, the current asset base of sovereign wealth funds represent more than that of both the hedge fund sector — which manages $1.5 trillion in assets — and the private equity sector — which has $700 billion in assets under management.
In recent years, sovereign wealth funds have increased investment activity, Langford said, going from about six deals in 2003 to about 70 deals in 2007. This represents a “significant swelling in activity.” Over the last two years, these funds have placed $35 billion into financial services.
More sovereign wealth funds are interested in real estate investments, he said, with 19 on a list of 24 invested in real estate. While “it's clear that there is a substantial allocation to real estate” due to transparency issues, it is not clear exactly what their allocation to real estate is, according to Langford. Deloitte estimates that Temasek, the Singapore fund, has a 10% real estate allocation, while the Abu Dhabi Investment Authority has an 8% allocation.