EUROPE -European institutional investors are likely to see a significant growth in more liquid real estate fund-of-funds in the market as a result of demand from investors, Landmark Partners has suggested.
At present, there are relatively few opportunity funds in the European real estate market compared with the well-established US market, according to Paul Parker, formerly portfolio manager at DTZ and now managing director for Real Estate Europe at Landmark.
However, there has been strong demand from pension funds in recent months as schemes seek to diversify away from core investments and gain greater returns for the risk premiums attached.
"We are some way behind the US in Europe and Asia is even further behind, partly because US institutional investors are targeting the opportunistic funds," said Parker.
"That situation is changing, more investors are shifting from core/core plus towards the opportunistic and more managers are looking at launching opportunistic funds in Europe. That is going to open up the opportunities from secondary trading," he continued.
Landmark makes no secret of its interest in secondary real estate fund trading, but Parker notes since his arrival six weeks ago the company has already been approached by investors asking for specific products to be created.
In part as a result of this, it is anticipated Landmark Partners is planning to launch a secondary market offering to help pension funds and institutional investors tap into the recent launch of funds while giving investors greater liquidity than might be available in the direct investment of unlisted funds.
"In Europe, there is an awareness of [the secondary real estate funds market], but to date continental European institutional investors have been happy to be in unlisted real estate funds," said Parker.
"They have been happy to assume if they can't get out for the life of the fund that is fine. But there are times when you may need to get out. You should be appraising your unlisted investments in the same way as listed.
He continued: "Some pension funds and investors have denomination issues, so they are looking for liquidity. They want to move into a market where they have more liquidity and freedom. We have been asked to streamline the management of five funds, taking the well-performing funds. And we are moving down the back end of the J-curve, so there is capital distribution from day one too.
A key element driving demand from investors is in part to alter asset allocation in light of recent market turbulence and the impact this has had on allocation sums, where the value of certain assets have dropped in value compared with other sectors, and shifted the total weighting of allocations.
Under such conditions, unlisted funds can restrict the ability of pension funds to move or alter their asset placements because of lock-in clauses.
But the impact of the recent credit crunch turbulence means investors are being more diligent about reviewing their holdings and will in turn improve the unlisted funds business, suggests Parker.
"There is capital out there and officials are being a bit more discerning, but where that is going is not your typical run-of-the-mill strategies. There seem to be a number of debt opportunities funds coming to the market but very few in the secondary market. We are launching a fund of fund of primary units and will be looking at debt because it is an alternative strategy with good manager diversification," concluded Parker.
Further details of the new fund from Landmark will be revealed in due course, but it is anticipated the strategy will primarily target opportunistic funds to generate 17-20% gross return, while funds will be selected based on management style, sector or region.