Most institutional investors are familiar with the appeal of holding real estate. With a low correlation to other asset classes, it can serve as an instant diversifier. Historically, real estate has delivered strong relative performance across multiple cycles, and its characteristic stable income makes it a compelling alternative to traditional fixedincome instruments.
In the past, institutional investors around the world have been domestically focused, but many are now increasingly investing in non-domestic or even global real estate. This shift has been driven by potential diversification benefits and risk reduction, as well as possible return enhancement. In smaller markets, such as Canada, a lack of domestic investment opportunities has also played a role.
Admittedly, assessing the global real estate market and the different means of gaining exposure can be a daunting task. Investors must assess various factors before making an allocation, including the impact of currency fluctuations and foreign tax laws, but they must also assess their own internal capabilities.
Generally speaking, only the largest pension plans have the capabilities and resources to construct a portfolio of directly held global real estate. Many smaller plans lack the specialist skills or resources required to manage such a portfolio.
Listed and unlisted real estate tend to have similar return characteristics over the long term but different characteristics in the short term. Listed real estate investments offer daily liquidity, with attendant greater volatility, while unlisted real estate is only periodically liquid and therefore may come with greater stability under normal market conditions.
Fortunately, unlisted global core real estate has become more accessible with the availability of open-ended funds with relatively low minimum-investment thresholds.
Source : Invesco Real Estate