Sovereign Wealth Funds Increase CRE Allocations, Falling Oil Prices or Not

Sovereign Wealth Funds Increase CRE Allocations, Falling Oil Prices or Not

In spite of concerns about how falling oil prices might affect sovereign wealth funds’ investment strategies, the funds’ have been steadily growing their assets under management well into March of this year, according to a report from London-based research firm Preqin. In fact, the proportion of sovereign wealth funds investing in real estate assets has grown to 59 percent in 2014, from 54 percent the year before.

For example, when private equity giant Blackstone closed its $14.5 billion real estate fund last month, the New Mexico State Investment Council was among the investors, with a $75 million stake. The fund manages the state’s permanent endowment fund and counts 19 government agencies among its clients.

“There has been significant growth in the proportion of sovereign wealth funds that allocate capital to real estate since 2013,” Preqin researchers write. “The interest of sovereign wealth funds and other institutional investors has enabled the private real estate market to enjoy a period of success, with private real estate assets under management reaching an all-time high of $742 billion at the end of 2014.”

Overall, Preqin estimates that sovereign wealth funds now have $6.31 trillion assets under management, representing a 17 percent increase from $5.38 trillion in October 2013.

Incidentally, Norway’s Government Pension Fund Global and the Abu Dhabi Investment Authority currently rank as the two largest sovereign wealth funds in the world, with a total of $1.59 trillion of assets under management. Government Pension Fund Global has been buying up assets stateside in recent month, including buying a stake in the Orrick Building in San Francisco in a joint venture with TIAA-CREF through its manager Norges Bank, as well as a stake in New York’s 2 Herald Square building through a similar transaction. The fund’s executives indicated they plan to continue investing money in commercial real estate assets in core U.S. metros, including New York, Boston, Washington, D.C., and San Francisco, as well as expanding their exposure to real estate in Japan and Singapore.

Abu Dhabi Investment Authority, meanwhile, has recently purchased stake in the Time Warner Building in New York City alongside Singapore’s state fund GIC Pte. and in hotels in New York and Miami, as well as allocating funds to commercial real estate assets in Europe.

It’s worth noting, however, that falling oil prices did have an impact on sovereign wealth funds that rely on oil for their income, such as Russian’s National Wealth Fund and Reserve Fund and Ghana’s Stabilization Fund. The governments of those countries indicated they would be withdrawing some capital allocated to their wealth funds to cover losses from falling oil revenues.

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