GLOBAL - Macroeconomic factors may be driving growth in emerging markets, but real estate investors should instead focus on asset type, tenants and credit quality, according to Morgan Stanley investment managers.

Paul Vosper, co-head of the Morgan Stanley real estate fund of funds group, told IP Real Estate: "You have become very granular, which in itself creates interesting opportunities. It's difficult to talk about risks across cities, let alone across countries or regions.

"There's a radical difference in risk profile between assets in different sectors within the same market that you don't see in developed markets to the same extent."

Even if investors focus only on larger markets such as Brazil and China, he said, they should be prepared to invest time and expertise to understand them properly.

"When it comes to smaller markets or more complex markets such as India, or South East Asia, the cost and time needed rises exponentially," said Vosper.

"Geographical spread is a big barrier. If you're located in Europe, it's difficult to monitor a portfolio spread across the emerging markets.

"Large pension funds and sovereign wealth funds are doing joint ventures, but, even for large managers, it's difficult to do that across markets."

David Boyle, executive director of Morgan Stanley Alternative Investment Partners (AIP) real estate group, identified a shift between mature pension schemes looking to match their liabilities and younger schemes and sovereign wealth funds focused on capturing a liquidity premium and capital appreciation.

"They come to us because they want to get started quickly, then may take back parts of the portfolio as they get more comfortable with investing in emerging markets," he said.

Although an emerging market allocation would typically comprise 20-30% of a global portfolio, Boyle said it was not uncommon for more sophisticated investors to tender a mandate to assemble a 100% emerging market portfolio.

At least in the short term, Boyle effectively ruled out competition with fund managers based in emerging markets themselves.

"Normally, investors need help to do due diligence on the platform, the fund manager's knowledge and whether they have the right players," he said, adding that many fund managers in emerging markets had relatively short track records.