UNITED STATES - Morgan Stanley Investment Management has formed a fund of funds (FoFs) business in real estate.
Joseph Stecher has been hired as managing director and chief investment officer of the real estate FoFs operation, as Morgan Stanley is of the opinion sector is a growing investment niche for the future.
"There has been a significant amount of interest in pension funds for the fund of funds format. Part of this has been the large increase in the number of commingled funds in the marketplace and the interest in real estate in general," said Stecher.
Over the past couple of years, the number of commingled funds being offered to pension funds has more than doubled as there are now more than 500 commingled funds in the marketplace seeking institutional capital.
By investing in a FoFs format, pension funds themselves do not have to look at every commingled fund being formed, as shown with Pennsylvania State pension fund's investment in the Oculus Small Cap real estate fund I. (See earlier IPE Real Estate story: Pennsylvania State turns to RE fund of funds)
To give perspective on the amount that maybe invested, Stecher estimates: "Of all the limited partner investments into private equity in a given year, on average 10% is from fund of funds. The other 90% is coming from limited partners who are buying interests in the private equity funds directly. For hedge funds the sum is 30%. Real estate is now at 1%. This will certainly go up, but no one really knows by how much," he said.
Stecher will be responsible for the identification, selection and management of real estate funds. The investments will be with commingled funds placing capital into real estate in the US and internationally.
Morgan Stanley will be working with pension funds on either a separate account basis or a commingled fund format for a FoFs strategy.
Stecher has almost 25 years of real estate experience with all property types, structures and regions and he previously managed a global program of real estate FoFs and separate accounts for institutions and high-net-worth individuals at Goldman Sachs.
Prior to Goldman Sachs, he was at General Motors Asset Management for 15 years and managed a $1.5bn (€960.4bn) of direct and indirect private equity real estate.