Seasoned primary funds in private real estate represent an investment opportunity at a time when the sector continues to face fundraising challenges, according to a briefing note by alternative investment firm Cliffwater.

US-based Cliffwater manages $50bn (£37.4bn) in assets across its alternatives platform and has committed over $130bn to private alternatives since 2004.

Read more: Real estate debt: A cautious recovery

In a briefing note, the firm’s head of real estate, Sean Brenan, and head of portfolio solutions, Phil Huber, argue that seasoned primaries offer many of the benefits associated with secondaries, including greater asset visibility, reduced blind pool risk, and less unfunded exposure.

Meanwhile, seasoned primaries preserves the long-term upside of a primary commitment but with the opportunity to evaluate actual properties rather than a prospective pipeline.

“A traditional primary commitment is made before most assets have been acquired,” Brenan and Huber explain. “Investors commit capital largely on the basis of a manager’s experience, track record, strategy, and investment pipeline. Seasoned primary funds are different. At the time of commitment, many are already 30-50 per cent deployed.”

Read more: Stable backs Zenzic’s real estate credit fund with $100m

Private real estate fundraising has slowed sharply, nearly halving in the span of two years, leaving even experienced managers often well short of their original targets.

Cliffwater says the slowdown reflects more than weaker investor sentiment toward real estate. “Many allocators remain constrained by legacy exposures, limited distributions, and denominator effects, even as improving transaction markets create new opportunities for managers. The result is a mismatch: attractive investments may be available, but the capital needed to pursue them remains scarce.”

According to the firm, this is where seasoned primaries come in, filling the gap between a traditional primary commitment and a secondary investment.

“In that sense, one of today’s most compelling opportunities with secondary-like characteristics is technically not a secondary at all,” Brenan and Huber add.

For seasoned primaries to be well-executed, they usually arise through longstanding relationships and require significant underwriting of both the existing portfolio and the manager’s remaining investment plan. Successful implementation requires identifying strong GPs from a large universe of those still seeking capital, evaluating the quality and seasoning of the existing assets, and committing at the appropriate point before the fund’s final close.

While fundraising recovery remains hard to predict, Brenan and Huber say that when capital returns to the asset class, funds are likely to close more quickly and opportunities to invest in seasoned primary portfolios may become less common.

Read more: Temasek and TPG invest in Cliffwater