Sizing Exposure to Real Estate

What’s the right allocation to private equity real estate? The honest answer, as ever, is that it depends. It mostly depends on the individual’s risk tolerance, objectives, existing portfolio, and other tax, liquidity, and estate planning considerations. It also depends on what you mean by real estate, which can take many forms and carry a wide range of risk/return profiles.

But to be helpful, I’ll usually say that I don’t think the answer is zero. And that’s where many of my clients begin this process, particularly those exposed to the stock market through their day jobs, bonus, personal account, and retirement portfolio.

It’s not an answer in itself, but I think it’s interesting to see how other sophisticated investors have answered the question. In one example, Blackrock’s Global Family Office Survey shows that real estate is 10-25% of the average portfolio. The report also notes that 40% of family offices expect to increase their real estate exposure over the coming months. This survey is consistent with others I’ve seen recently. But ultimately, the decision is a personal one that only you can make, ideally with the help of informed professionals.