International real estate focused on key markets Sovereigns acknowledged the benefits with potential for long-term investment of external asset managers, particularly International real estate allocations also grew in for international allocations the period to 2016, though at a lower rate than The success of domestic real estate investments in home market. Sovereigns reported that increased matching liabilities and the scope to capture liquidity international allocations in many cases represented alpha through internal models is reflected in the pace tactical factors such as restrictions in domestic of home market allocations over the past three years. market or challenges achieving target allocations in However, looking forward sovereigns appreciate infrastructure or private equity. that further increases may be constrained by asset As aresult, increases in international allocations allocation or the maturity and depth of the local were relatively concentrated in terms of asset quality = market. Many sovereigns also noted that there were (tier-1 assets offering a comparable return profile risks associated with further internal investment in of private equity and infrastructure). This has led home market real estate: sovereigns to expect greater growth in high grade - Despite a focus on high-quality assets, liquidity office and commercial real estate (figure 20), with is a challenge for real estate investors and many long-term tenancies underpinning income generation, | sovereigns are approaching limits on the size of over industrial or residential categories which offer their investments asset growth and development potential. - Growing internalisation leaves sovereigns without The importance of quality to international real third-party support in governance and compliance estate allocations is also evident in geographic for their real estate investments allocations. Sovereigns prefer ‘safe haven’ markets - lf interest rates rise, demand for real estate is such as