CONTRIBUTORS
Tony Davidow, CIMA®
Senior Alternatives Investment Strategist
Franklin Templeton Institute
Priya Thakur, CFA, CAIA
Analyst
Franklin Templeton Institute
Key takeaways
- Private real estate is a significant portfolio allocation for family offices and institutional investors.
- The asset class has historically delivered attractive risk-adjusted returns, an inflation-resistant income stream, and portfolio diversification—outcomes that resonate in today’s market environment.
- Opportunities for individual investors have expanded with the introduction of registered funds (interval and tender-offer) that offer daily valuation and greater liquidity.
Private real estate has long been prized by family offices and institutional investors for its historical investment characteristics: durable income, competitive returns, inflation hedging and portfolio diversification. According to the UBS Global Family Office survey,1 the average allocation to real estate was 13%. Among institutional investors, the allocations range by institutional segment, and the size of the institution.
How Institutions Allocate to Alternatives
Exhibit 1: Alternative Diversification Amongst Institutional Investors
As of February 5, 2023
Sources: Preqin, CAIA Association (2023).
In this paper, we explore:
- Multiple avenues of potential return.
- Attractive investment fundamentals.
We believe commercial real estate has historically delivered strong risk-adjusted returns, attractive income, diversification, and inflation hedging. While the office sector has been struggling lately, industrials, multifamily housing and life sciences offer attractive opportunities. Commercial real estate should be viewed as a long-term investment. Product innovation like interval and tender-offer funds have made real estate more accessible, to a broader group of investors, at lower minimums, and greater flexibility.
Endnote
- Source: 2023 Global Family Office Report, UBS.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Equity securities are subject to price fluctuation and possible loss of principal.
International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Investments in companies in a specific country or region may experience greater volatility than those that are more broadly diversified geographically.
Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.