Sovereign wealth funds from China to Azerbaijan, which pushed their real estate deal making to a record last year, are set to extend their buying spree as they seek alternatives to low-yielding bonds and volatile stocks.
The funds made 38 property investments valued at almost $10 billion in 2012, according to the Sovereign Investment Lab at Bocconi University in Milan, which has data going back to 1985. While lower than the $13 billion spent on real estate the year before, such deals were 21 percent of all sovereign fund investments last year, the highest percentage on record and topping the 2011 high of 16 percent.
“Given the very low yields in the bond markets and the volatility in the equity markets, real estate is an attractive play at the moment, especially for long-term investors,” said Andrew Rozanov, head of sovereign advisory at London-based Permal Investment Management Services Ltd. who coined the term “sovereign wealth fund” in a 2005 article. Real estate investments “typically include protection against inflation and portfolio diversification,” he said.
The article goes on to list some of the investment hotspots, including prime locations in large U.S. and European cities. A couple of advantages to real estate investment not mentioned in the article: no corporate governance concerns that come with equity investment and, related to this, fewer host country national security concerns that might impede a deal.