Being local is the only way to have a successful global strategy, delegates have heard at the IPD/IPF Property Investment Conference in Brighton: the two are not in opposition, but complement and reinforce each other.
Being local is the only way to have a successful global strategy, delegates have heard at the IPD/IPF Property Investment Conference in Brighton: the two are not in opposition, but complement and reinforce each other.
Investing across geographies allows greater risk diversification but is resource-intensive and requires ‘boots on the ground, talent development and a local presence,’ said Goh Kok Huat, chief operating officer and president of real estate at GIC. For Singapore’s sovereign wealth fund investing abroad was not a choice, he explained, as its mandate excludes investment in the city state.
GIC
‘We are global by necessity, and being global gives resilience to the portfolio,’ said Goh. GIC Real Estate, which is in the top-10 real estate investment firms in the world, started investing in the US in the early 1980’s and then expanded to Asia and Europe. It now has 50% of its assets in Asia, 25% in the Americas and 25% in Europe, across all sectors from office to retail to industrial and residential.
Those percentages are not cast in stone, he said: ‘We constantly re-evaluate. For example, we are investing in the US less than we were, or could be, because the fiscal situation there has deteriorated. Tax regimes are an important component of our evaluation.’
Investing in different countries ‘inevitably means giving tax lawyers a good revenue stream, but tax is part of the total return equation, not the biggest driver,’ said William Dinning, head of investment strategy at Coal Pension Trustees, which has £20 bn AUM globally.
Local rules
GIC’s strategy is to focus on four or five major countries in any region in the world, Goh said: ‘Once that is done, additional diversification from adding another country becomes small. In order to add a country we need to focus on jurisdictions that have better beta and sufficient depth to build up a sizeable enough portfolio for us to justify resource allocation.’
To deal with the complexity of investing across jurisdictions, with different tax structures, risk management, regulations and challenging market access, the group relies primarily on its teams on the ground in various offices around the world, as ‘the bottom-up approach is vital to outperform,’ he said. ‘The teams source the deal, which is then discussed by our investment committee using a property cycle risk indicator, a sort of heat chart that signals risk levels.’
For niche markets and sectors, GIC Real Estate relies on the help of ‘best-in-class partners around the world,’ he said. In Europe the group has chosen as partners Prologis, Ronesans Holding and Unibail-Rodamco.
‘A bottom-up approach is the key to successful global investments,’ agreed Nick Preston, managing director at Grosvenor Fund Management. ‘Our 65-year experience of investing abroad has shown that you need local teams on the ground or a strong local partner.’
Another ‘must’ for global investors is currency hedging, given the levels of volatility seen in exchange rates, said Dinning: ‘We always hedge, because income streams are a very important component of our strategy.’