Why Investing in Real Estate Private Equity Funds is a Great Option

by Property M. The Trusted Solution for Single Family Residential

The real estate industry has seen some significant changes in recent years, with increased interest rates, economic growth going down, and weak corporate profits. All this means that only having a portfolio that is made up of stocks and bonds may not generate higher returns for years to come.

However, before you dive deep into commercial real estate investments and start investing, you need to understand the kind of real estate investments that are there and what makes the perfect fit for you. Taking interest in Real Estate Private Equity funds can be a game changer for you.

Reasons to Invest in Real Estate Private Equity Funds

Different Investment Goals in Comparison with Public Equity Real Estate Funds

Whenever you are busy evaluating a potential investment, it is fairly important to have a look at everything from top to bottom aka alpha and beta. Beta refers to measuring the volatility of a fund relative to the market by gauging how much the fund's returns move up or down the gains or losses of the total benchmark market index.

While alpha is the difference between the expected returns of a fund on the basis of its beta and its actual returns, and even at times it gets interpreted as the value that is added by a portfolio manager. A great example of this difference between alpha and beta can be seen with public REITs.

With the use of public REITs, beta buying becomes essential whereas with real estate private equity funds, achieving alpha is the goal and the same with strategic business plans for skilled asset managers and properties.

Private Real Estate Isn't Linked with Stock Market Fluctuations

It is no secret that public real estate products can be great investments, but they are still in high correlation with the stock market. In simpler terms, it means that they rise and fall on the basis of what is happening with the current economy and the value can be impacted by events that have nothing to do with real estate fundamentals. Due to the same reason, the addition of publicly-traded REITs alone wouldn't improve the risk-adjusted portfolio returns.

Minimized Risk Exposure

Private equity funds are one of the best and most effective options for investors. The reason is that they offer a diversified investment. Great firms ensure that every property is a fund that gets run as a separate business, meaning that if one somehow underperforms, it doesn't have an impact on all the others.

This is what is different with a deal-by-deal investment strategy as it doesn't offer the same perks.

Manager Interests' Alignment

The best way to align the interests of managers and investors is with the concept of co-investment. This can help in investing to maximize investment performance from the investors' side.

REITs are Volatile in Nature

It doesn't come as a surprise for many that as soon as the economy goes down the drain, REITs can get severely affected. According to statistics from 2007 and 2008, the REITs lost 15.7 and 37.7 percent respectively. Ever since 2000, REITs are only second to upcoming market stocks as the most volatile asset class. Over time, interest rates are bound to rise, and the coming years can be tough, especially for people that are buying REITs today.

Conclusion

In case real estate private equity funds aren't a part of your portfolio, they should be at the top of your list.