Institutional investors are signalling a return to the fundamentals of real estate investment by opting for core funds, according to the latest Inrev study. The results of the Inrev Investment Intentions Survey 2010 show that close to 70% of investors now prefer core-style funds compared to 38% in 2009. This shift towards core has been almost completely at the expense of the opportunity fund style, which fell to 3% from 37%.

'This shift down the risk spectrum shows that investors are focused on the benefits that real estate can offer such as diversification and income generation, which can be found at the lower risk/return end of the scale with core funds,' said Andrea Carpenter, Interim CEO for Inrev. 'When this shift started in 2009, it was a reaction to the financial downturn but the continued trend suggests that investors are revising their expectations of the role of non-listed property funds.'

In contrast, fund of funds managers have increased their appetite for risk with 43% now preferring opportunity funds compared to 23% last year. This partly indicates that fund of funds managers are looking to capitalise on opportunities in the current market but also reflects their general preference for higher risk/return strategies.

At 49%, close to half of investors plan to increase their allocations to non-listed real estate funds over the next two years. This remains the majority position, but is the second year that this figure has declined. In 2009, 63% of investors intended to increase allocations and 85% in 2008. However, the shift is mainly in favour of 'no change' rather than a decrease.

Access to expert management continues to be the main reason to invest in non-listed property funds from all three respondent groups. Fund of funds managers and fund managers also rate highly the ability to take advantage of market conditions. However, investors are less concerned about this, reflecting their more conservative stance.

Concern over alignment of interest was selected by almost 70% of investors as the main obstacle to investment in non-listed property funds. This overtakes both market conditions and the lack of transparency and market information. There were also notable rises in concerns from investors of the lack of liquidity and availability of product. The ability to raise capital is seen by all respondent groups as the main obstacle facing fund managers this year.