writes Alex Catalano
The great, the good and not-so-good of real estate fund management were at INREV’s annual gathering last week. As Proprium Capital’s Willem de Gues pointed out in an entertaining double act with CBRE Global Investors’ Pieter Hendrikse, while most fund managers are based in northern Europe, INREV’s meeting is typically held in sunny southern Europe. This year’s, in Barcelona, conformed to pattern.
Anecdotal evidence from the conference suggests the real estate investment outlook is also brightening. With bond yields and growth low, and volatility in equities high, long-term investors have discovered the virtues of ‘real assets’, ie real estate, energy, infrastructure, farmland etc. These, said JPMorgan’s Joseph Azelby, will play a larger role in portfolios, perhaps 25%.
Azelby recognised that this prediction might be a tad self-serving, since JPMorgan has placed a big bet on this “realisation”, and his future as the bank’s global head of real assets is riding on it. But the big-league investors at INREV seem to be backing up his line. CPPIB has 20% of its portfolio in real assets, and Wenzel Hoberg, CPPIB’s European real estate head, also likes them.
The Canadian fund expects real assets to play a large role as it doubles in size over the next 10 years. “They provide scale for our growth,” he said. “We can put them in the portfolio and get away from the five-to- seven-year cycle of private equity. There’s too much catch-up with private equity.”
Similarly, Texas Teacher’s pension fund has 20% in a ‘real return’ bucket, with real assets being the major component. In the UK, the Environment Agency has appointed Townsend to increase its pension plan’s real assets allocation from 5% to 12% (see p5).
The bad news for fund managers is that big investors still don’t like funds: they are obsessed with control. APG is investing in real estate equities, clubs and funds “because we have more control,” said Patrick Kanters, MD of APG’s global real estate and infrastructure arm. It is focusing on restructuring its existing fund invest- ments to extract more from them.
Hoberg was equally clear that CPPIB favours joint ventures, “efficient from the fee perspective” and, as it moves to more opportunistic investment, maybe clubs. “But if you want more control you need to move away from funds,” said Hoberg.
Clearly, big investors will only use funds to access specialist sectors or assets, and even then might want to choose their fellow limited partners. INREV has made a virtue out of this necessity and is to include clubs in its index for the first time.
Reporting real estate funds’ demise may be premature, as lots of smaller investors lack the scale for joint ventures and clubs. As de Gues and Hendrikse said in their comedy skit, what’s the difference between a joint venture, club and a fund? The number of investors? The number of assets?
The line between funds and clubs is blurring. The perceived wisdom is that with a small number of like-minded members, clubs are easier to deal with if things don’t go as planned. Time will tell.