Pension commitments to real estate continue to increase in 2013 Domestic public pensions committed $5.3 billion to managed real estate vehicles in the first quarter of 2013, up from $4.4 billion in Q1 2012 Commitments to real estate managers by U.S.-based public pensions continue to increase, according to data tracked by FPL Consulting. Per FPL s proprietary database, pensions committed $5.3 billion to managed real estate vehicles in the first quarter of 2013, compared to just $4.4 billion through the same period in 2012. This trend represents a continuation of gains made in 2012 where commitment volume represented a 29 percent increase over 2011. The database includes commitments to over 150 managers from 110 public pensions representing $2.7 trillion in assets under management. Tracked commitments include those made to managed vehicles such as closed-end commingled funds, open-end commingled funds, separate accounts, club funds, and programmatic joint ventures. Other notable findings: Investment strategy Value-add strategies have gained favor among pensions thus far in 2013, representing 37 percent of aggregate commitment volume. This represents a significant increase over the last three quarters where value-add vehicles have accounted for only 17, 22, and 25 percent of commitments respectively. Conversely, while core vehicles were favored by investors for much of 2012, they represented only 34 percent of commitments in Q1 (down from 50 percent in Q3 2012 and 40 percent in Q4 2012). Vehicle structure Closed-end commingled funds have also been very popular with investors thus far this year, representing 59 percent of Q1 commitments (up from just 36 percent in Q4 2012). Separate account structures have seen a corresponding decrease (from 51 and 54 percent in Q2 and Q3 2012 to just 22 percent in 2013). Asset class - Vehicles focusing on a specific asset class continue to gain traction with investors, accounting for 40 percent of aggregate commitment dollars (up from 22 percent in 2011 and 35 percent in 2012). Among those asset-specific vehicles, multifamily was the most popular, accounting for 48 percent of total commitments. Manager concentration - Commitment activity continues to illustrate a bifurcation between the haves and have nots. So far in 2013, the top 5 firms (by aggregate fundraising dollars over the period) represent 41 percent of total capital flows, more than doubling the capital raised by all firms outside the top 20. Vertical integration - Vertically integrated managers have continued to gain favor with investors, receiving 33 percent of commitments, up from 26 percent in 2012 and 20 percent in 2011. Operators are particularly popular selections for separate account vehicles; of all commitments to separate account structures, 83 percent were made to vertically integrated managers.
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Q1 2013 Fundraising Update Pension fund commitments to managed real estate vehicles
Pension commitments to real estate continue to increase in 2013 Domestic public pensions committed $5.3 billion to managed real estate vehicles in Q1 2013, up from $4.4 billion in Q1 2012 Commitments to real estate managers by U.S.-based public pensions continue to increase, according to data tracked by FPL Consulting. Per FPL s proprietary database, pensions committed $5.3 billion to managed real estate vehicles in the first quarter of 2013, compared to just $4.4 billion through the same period in 2012. This trend represents a continuation of gains made in 2012 where commitment volume represented a 29 percent increase over 2011. The database includes commitments to over 150 managers from 110 public pensions representing $2.7 trillion in assets under management. The average commitment size so far in 2013 is $66 million, which represents a decrease from full year 2012 where the average size was $92 million. As one would expect, the size of commitments for separate accounts is considerably higher with an average size of $163 million; this too represents a decline from 2012 where the average separate account commitment size was $279 million. $B Commitments to real estate managers $mm 4.4 21 66 56 63 5.3 Q1-2012 Q1-2013 Overall Average commitment size (overall and by vehicle type) Closed-end funds Open-end funds Separate accounts 163 Investment Strategy 2013 YTD Commitments by investment strategy 4 7 14 4 While core vehicles were the clear favorite among pensions in 33 17 21 22 25 21 25 37 2012, YTD 2013 commitments suggest a resurgence of higher yield strategies. Vehicles employing value-add or opportunistic strategies represented 62 percent of aggregate commitment dollars in Q1, compared to just 34 percent for 46 50 40 34 core vehicles. Other strategies (e.g. senior/mezzanine debt, securities, etc.) rounded out the remaining 4 percent. Q2-2012 Q3-2012 Q4-2012 Q1-2013 Core Value-add Opportunistic Other 2013, FPL Consulting
Vehicle Structure 51 54 46 Commitments by vehicle type 6 38 40 36 26 22 20 59 Q2-2012 Q3-2012 Q4-2012 Q1-2013 Closed-end commingled Open-end commingled Separate account There has been a material change in the types of vehicles pensions are committing to over the past year. While separate accounts were heavily emphasized through most of 2012, commingled funds have recently been attracting much greater levels of capital. Separate accounts represented 51 and 54 percent of total commitment volume in Q2 and Q3 of 2012, but only 22 percent of commitments flowed to such vehicles in Q1 2013. Conversely, open-end commingled vehicles attracted very few commitments in early 2012, but have seen significant levels of activity the past two quarters. Closed-end funds have been the most popular among investors so far in 2013, representing 59 percent of total commitment volume. Asset Class Vehicles focusing on a specific asset class continue to gain traction with investors, accounting for 40 percent of aggregate commitment dollars (up from 22 percent in 2011 and 35 percent in 2012). Among those asset-specific vehicles, multifamily was the most popular asset type, accounting for 48 percent of total commitments. Industrial has also been popular with investors so far in 2013, representing 27 percent of commitment volume. Other includes asset types such as hotels, student housing, senior living facilities, medical office, single family, etc. 2013 YTD 2012 Breakdown of commitments by asset type (among asset-focused vehicles) 30 48 Multifamily Office 23 9 12 Industrial Retail 27 16 7 19 Other 9 Geography Breakdown of commitments by geography 6 4 14 26 22 12 64 71 70 The majority of commitment capital (70) went to vehicles with a North American focus, a number that has held relatively constant over the past couple of years. Vehicles investing on more than one continent dropped to 12 percent of commitments while those focused on Asia have showed a significant increase, accounting for 14 percent of commitments so far in 2013. That said, this number is largely driven by a $500 million commitment from New Jersey Division of Investments to Blackstone Real Estate Partners Asia. 2011 2012 2013 YTD North America Global Europe Asia Latin America 2013, FPL Consulting
Manager Concentration Commitment activity continues to illustrate a bifurcation between the haves and have nots. The top firms (in terms of fundraising dollars) have consistently attracted a disproportionate share of total commitment volume over the past couple of years. So far in 2013, the top 5 firms (by aggregate fundraising dollars over the period) represent 41 percent of total capital flows, more than doubling the capital raised by all other firms outside the top 20. This bifurcation is even more dramatic when considering that there are many other firms in market that have not received any commitments thus far in 2013. Top 5 41 Concentration of commitments among managers All others 20 10-20 19 5-10 19 Vertical Integration Commitments to vertically integrated managers (as of total commitments) 26 33 2013 YTD Vertically integrated managers have continued to gain favor with investors, receiving 33 percent of commitments, up from 26 percent in 2012 and 20 percent in 2011. The vast majority of commitments thus far in 2013 were made to vehicles employing core or value-add strategies. Additionally, of all commitments to separate account structures, 83 percent were made to vertically integrated managers. 2012 2013 YTD Commingled funds JV/Separate accounts Contact For more information, please contact: Timothy Kessler Principal tkessler@fplassociates.com 2013, FPL Consulting
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