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Sovereign wealth funds are increasingly looking beyond core markets to regional and second-tier cities || Brian Ward
Last year’s report highlighted that risk appetite was already increasing, but also noted that investors were targeting ‘safe haven’ cities. This continues to be the case as new institutional market entrants, especially Asian insurance companies and pension funds, test the waters with core investments in stable markets.
However, international sovereign wealth funds with previous direct cross-border property investment are increasingly looking beyond core markets to regional and second-tier cities where higher yields are on offer, often with little increased risk.
Property fundamentals scored highest in the list of factors influencing investment decisions, again highlighting the propensity to take more risk when fundamentals support this. The economic growth potential of regions was also very important followed by yield levels.
There were also some regional differences in the importance of certain factors. With the destablised euro still recent history, it is not surprising that sovereign risk was considered more important by EMEA investors, while liquidity and governance risks were of particular concern to Asian investors.
REGIONAL VARIATIONS ON A THEME
While the survey might suggest that risk appetite among investors does not vary greatly, Middle East and North African (MENA) investors did reveal a degree of adventurism with 71% suggesting they would take on more risk. The other regions remained closer to the global average for risk. IRR expectations, though, showed greater variability, with investors from the US (80%), MENA (78%) and Asia (77%) all seeking returns in excess of 11%. For leveraged IRRs over 20%, the US was in a league of its own, with 20% of the sample targeting very high returns, followed by Asia at 12%. This is probably explained by recent increased activity of US private equity players. In contrast, UK investors targeting very high returns amounted to less than 4% of the sample. INVESTORS IN EXPANSION MODE
2015 GLOBAL INVESTMENT SENTIMENT REPORT
COLLIERS INTERNATIONAL
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