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Blog

Institutional investors and real estate portfolios

Date : 15/09/2019
Author:  Muaz Al-Ateeqi

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Institutional investors are the biggest investors in any market. They are the whales of the market and can play the role of market maker, such as; pensions fund, hedge funds, insurance companies, mutual funds and sovereign wealth funds. For such institutions, they tend to look for steady growth, low risk and long-term investments.

The real estate sector is a natural magnet for governmental institutions because it is hedged against inflation, relatively less volatile than other sectors, it is a tangible asset and it provides periodic cash returns.

Institutional investors can diversify their investments within the real estate sector depending on which asset class they want. To do so, they mainly have two entries; through a real estate fund or a real estate portfolio.

The main differences between a fund and a portfolio are:
A fund is a pool of investments, which are converted into ‘units’ or ‘shares’ that are managed by a professional fund manager. The fund manager has full control on the processes and procedures within the fund. The investors buy ‘shares’ or ‘units’ of the fund. Institutional investors generally invest in well-diversified, well managed funds that has a proven track record. 

A portfolio is collection of funds or/and properties that are owned by a single entity. That entity has full control on the policies and procedures to run the portfolio. The main disadvantages are:
  1. All funds are from a single individual.
  2. Governments tend to have a long bureaucratic process, which sometimes lead to waste investment opportunities and decisions.
So, to overcome the government bureaucracy while maintaining full control on assets, institutional investors engage a third experienced party to manage all or part of their assets, this is called investment outsourcing.

Portfolio manager helps in:
  1. Providing the necessary in-depth studies and analysis and recommendations for the owner.
  2. Executing the owner’s vision more efficiently.
  3. Overcoming governmental decision making process bureaucracy through private sector.
Maintaining the value of the assets through an experienced portfolio manager.

Tags:  Investors, realestate

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