Investors Eye Real Estate After Tough 2007

Source : The Business Times, March 11, 2008

Asian property and niche sectors are attracting assets

Many investors in alternative assets plan to invest more in real estate after poor returns from the sector in 2007, a PricewaterhouseCoopers (PwC) survey showed yesterday.

John Forbes, UK real estate leader at PwC, said some investors had been lured back to UK property after prices fell sharply.

Growth areas such as Asian property and niche sectors such as student housing were also attracting assets, he said.

PwC's global survey, which polled 226 institutional investors and alternative investment providers in the fourth quarter of 2007, showed a gross 41 per cent of investors plan to increase real estate allocations over the next three years.

That compares with 40 per cent for private equity, 35 per cent for commodities and 33 per cent for hedge funds.

However, 21 per cent of investors planned to reduce their allocations to real estate, compared with 16 per cent for hedge funds, 15 per cent for commodities and 11 per cent for private equity.

Forbes said: 'UK real estate capital values are down perhaps 20 to 25 per cent from the top of the market. For some types of investors that will discourage them.

'But for opportunistic investors, who have been out of the UK market for the past two to three years, the UK is starting to look cheap so they are coming back.'

UK commercial property delivered a total return, which combines rental income and capital growth, of -3.4 per cent in 2007, as the credit crisis bit and investor sentiment soured.

The survey also showed less than half of respondents were satisfied with the performance of hedge funds, while nearly a fifth were dissatisfied.

That compares with private equity, where two- thirds were satisfied and only 7 per cent dissatisfied, or real estate, where 57 per cent were happy with performance and 11 per cent unhappy.

The survey follows a strong year for hedge funds. According to Credit Suisse/Tremont they returned 12.56 per cent in 2007.

Rob Mellor, UK financial services tax leader at PwC, said hedge funds had to become better at managing investor expectations and explaining how they achieved returns, especially when conditions turn.

Some may have feared the credit crisis would hit hedge fund returns harder than it eventually did, he said. -- Reuters