While, for Indian real estate developers private equity industry has become one of the preferred funding options, for the investors the real estate funds provide greater flexibility to customize their real estate asset allocation in the portfolio. It offers additional diversification possibilities and risk mitigation potential.
Although, real estate fund has low correlation to traditional asset classes and typically seeks income and capital appreciation, integrity and stability of the fund management is an important consideration. Additionally, management and evaluation of risk is a major part of any successful real estate investment strategy.
Entry: Timing market entry depends on the real estate market conditions and is the key to succeed and sustain as a private equity player.
Strategy: A typical investment strategy followed by a fund manager depends on the investor risk appetite ranging from low, medium or high and could be Core Plus, Value-Added, or Opportunistic, respectively.
Execution: During project execution phase emphasis on value creation rather than returns and profitable realization of investment can help create a sustained long term success.
Exit: Similar to the entry phase, exit is an equally crucial phase of the private equity lifecycle. A well planned timely exit could lead to an opportunistic realization.
Other significant aspects for financial reliability are the quality of financial and operating controls, corporate governance and reporting. The risk mitigating due diligence includes fund’s potential returns on investments weighed against the perceived risk and the fund manager’s ability to enhance returns with leverage.