Real estate offers income generation and Low fixed income access optionality yields means This year, sovereigns cited a range of reasons for sovereigns are increasing target real estate allocations, including beginning to view the scope to capture liquidity alpha, the potential property as a to generate income matching mid- to long-term reliable source of liabilities and the potential for internalisation and income. control. With lower interest rates, lower funding commitments to sovereigns and a lack of appetite to vary asset allocations, the potential for leveraged participation in real estate (equity and debt) appeals to sovereigns seeking alternative means of scaling ‘frozen’ asset allocation to match liabilities. In addition, while there are few alternatives to third-party management and fee structures across infrastructure and private equity (with co-investment in many cases challenged by fund governance and risk appetite), sovereigns have a broad range of options to participate in the development, acquisition and management of real estate. Indeed, there was no consensus among sovereigns on the best placed real estate manager, with internal and external managers, developers and operators cited as preferred real estate partners in figure 16. Sovereigns are also attracted to the flexibility of real estate value chain participation as it reduces upfront funding a commitments and allows for a gradual internalisation Fig 16. Preferred manager for i Real estate developer of expertise and resource. real estate investments (% citations) i Real estate operator HB Internal investment team i External asset manager 36 29 21 14 Sample is based on sovereign investors and excludes central banks. Sample=28. 25 HOUSE_OVERSIGHT_026705