PGIM: A Rising Private Asset Class: Core+ Real Estate Debt July 8, 2021
July 2021 - Real Estate
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Institutional portfolios have been increasing allocations to global real estate (RE) core+ debt, often via a private fund investment vehicle. CIOs managing a multi-asset portfolio with allocations to both liquid and illiquid assets need to evaluate the cash flows from each asset class to better understand their portfolio’s liquidity risk. However, due to the specific cash flow pattern of core+ RE debt funds, and a lack of publicly available data, commonly used cash flow models for other private assets such as private equity are not suitable.
We present a new cash flow model for private core+ RE debt funds using reasonable, practitioner-supplied parameter estimates. The model incorporates sensitivity to the economic environment both at fund launch and over the fund’s life. This core+ RE debt cash flow model can be integrated into a multi-asset portfolio analytics tool such as OASIS™, to help CIOs evaluate the diversification and liquidity management potential that private core+ RE debt may bring to their portfolios.
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