After a cooling-off period post-GFC, non-listed funds are – some would say inevitably – returning to favour.
Indeed, non-listed vehicles remain the preferred route to the real estate market, according to Matthias Thomas, CEO of INREV. Speaking during a seminar at MIPIM last month, Thomas pointed out that pension funds gave non-listed real estate a resounding vote of confidence last year, contributing €57.3 bn (46.4%) of all new equity, according to INREV’s latest Capital Raising Survey. As a result, the amount of capital available for non-listed real estate rose to new record of €124 bn, the survey found.
While funds account for the lion’s share of non-listed investment, the range of opportunities available to investors has increased significantly in recent years, noted Ian Gleeson, chief investment officer - Global Multi Manager, CBRE Global Investment Partners Continental Europe during a panel session. 'The range of options to get into the market is wider than ever,’ he said. ‘We have seen the emergence of new types of vehicles, separate accounts, club deals...The landscape has definitely changed. Investors are looking increasingly at which vehicle gives them the best execution.'
CBRE Global Investors has roughly €86 bn of assets under management globally.
Even fund of funds – which were widely spurned in the aftermath of the crisis – are finding favour again and competition in this space is growing, noted Rainer Komenda, head of Real Estate Funds at German pension fund Bayerische Versorgungskammer. 'Fund of funds have gained ground in response to the fact that fund of fund managers have been re-inventing the business model.'
Robert-Jan Foortse, head of European Property Investments at the asset management arm of Dutch pension fund giant APG, which has €37 bn tied up in real estate assets worldwide, concurred that the market had matured and that increased liquidity is possible through the private equity secondary market.
For APG, a non-listed vehicle is the preferred route in certain instances, he added. 'Typically when we enter a niche area, we would do so through a non-listed fund. We would try and find the right manager and build the product ourselves, even if it takes a bit longer.'
About 30% of APG’s real estate AUM is located in Europe, both via direct and indirect investments and listed securities.
When it comes to picking fund managers, APG tends to back on local specialists, Foortse said. 'Property is a local business. We would rarely back a European manager in Asia.' That said, APG is interested in scale, he added. 'The strategies we invest in needs to be scalable, we want to create bigger platforms and are therefore limiting the number of investments we have. Is there a right number? The average size of our top 10 non-listed investments is close to €500 mln. Typically we are a large minority investor.'
At CBRE Global Investors, the size of its vehicles depends on region and strategy, Gleeson said. 'A relatively small fund size for us would be surprising. But the right size depends on the strategy and the market.’ Another key criterium is the speed with which capital can be deployed, he added. ‘An opportunity that exists today may not exist in two days time.'
Commenting on future fundraising prospects for non-listed real estate vehicles, Foortse said that a lot of capital was being recycled back from recent dividends. Overall, investors appear to be committing more to the sector due to the denominator effect and the relative attractiveness of real estate vis-à-vis other asset classes. The fact that fixed income buyers coming into the market because the low yields still compare favourably could make the current cycle go on for a lot longer, he added.
'But my sense is that there is more caution out there. Sovereign wealth funds are holding back a bit. Some investors feel that there is no point in investing in London until the outcome on the Brexit referendum is known.'
Real estate remains attractive relatively speaking and will continue to bring capital in, agreed Gleeson. 'I don't think it will smash records like it has though…There are risks out there and we're seeing a pull back and caution, on a global basis…The market is being perceived as expensive, although on a relative basis it is less so than other asset classes.'
