The current climate has presented investors with a new set of investment options, not all of which are as clear as one might like. Richard Lowe reports  

For investors with capital to invest in indirect property, their brief is fairly simple at the moment: seek out fund managers that can cope in difficult markets and still offer strong returns in times of turmoil. However, putting this into practice is far from simple and instead investors are faced with various dilemmas.
Should investors be targeting fund managers with proven track records in squeezing as much value out of assets by actively managing them? Should they be looking at funds that seek to capitalise on distressed properties or perhaps even managers that plan to purchase the debt itself? Or should investors forgo the mature Western markets altogether and direct all capital to Asia Pacific and other emerging regions?
"If you have capital you have two choices at the moment," says Ian Marcus, managing partner in the investment banking division of Credit Suisse. "Do you go to the growth markets where there is still significant upside potential or do you look at the distressed markets in the US, UK and Spain?"
Investors are evidently seeing the logic in backing a fund that can take advantage of distress. Curzon/AEW Europe has completed its largest ever capital-raising to target investment opportunities that arise "from the current dislocation in European real estate markets, economies and global capital markets".
The European Property Investors Special Opportunities fund closed with just under €800m in equity raised - mainly from existing clients, but also some new German, Dutch, Nordic and US institutional investors.
Ric Lewis, chief executive of Curzon Global Partners and chief investment officer for AEW Europe, foresees the advent of what he calls "the Great Exchange", a time when a vast array of real estate will be divested from the balance sheets of companies, hedge funds, governments and private investors.
Europa Capital, the European opportunity fund manager, has received €750m of equity capital commitments for two new funds, with spending power in excess of €2.5bn. Europa claims it has attracted investments from endowment funds, foundations and pension funds for both its pan-European vehicle, Europa Fund III, and its Emerging Europe Fund.
The fund manager expects to find opportunities for "capital appreciation through corporate restructuring in the current financial environment, not so much due to the emergence of "distressed assets", but because an increasing number of owners of the assets are themselves becoming "distressed".
And private equity companies continue to be active in this space, with one of the latest funds to be launched by the Carlyle Group, CEREP III, claiming to be Europe's largest private equity fund dedicated to real estate investment, with €2.2bn in capital raised.
Meanwhile, MGPA, which is part-owned by Macquarie Bank, has closed its third real estate fund with equity commitments totalling $5.2bn (€3.35bn). The MGPA Fund III is split into two regional funds, focusing on Europe and Asia respectively.
The UK has been identified as one of the potential hot spots in Europe - along with Spain and Ireland - where distressed opportunities are likely to emerge, hence the proliferation of UK opportunity funds at the start of 2008.
Australia's Valad Property Group is already seeking to raise capital for its second UK opportunity fund, having only launched its predecessor in January, attracting only £150m (€190m) of its target of £500m of equity. The fund manager now claims to expect worsening market conditions and more opportunities than it did at the beginning of the year.
TriAlpha, the asset management arm of the Stonehenge Group, has launched what has to be the first of its kind: a global property hedge fund of funds. This product will focus on hedge fund managers that specialise in the global property sector and is being marketed as a way of profiting from the current volatility and uncertainty in real estate markets.
Typically, it will invest in underlying hedge fund managers that invest long and short in the listed markets, but it also aims to gain exposure to hedge fund managers that might use property derivatives or invest in debt.

The investor, TriAlpha, is aiming to attract two camps: those with sophisticated hedge fund portfolios that want to increase their "thematic" exposure to property and those who will see this as an interesting vehicle to fit into their overall real estate allocation.
"It has two possible applications and therefore the emphasis will change slightly depending on which client uses it," says Cobus Kruger, chief distribution officer at TriAlpha. "If an asset allocator uses it they will look at it more like a property fund and when the hedge fund of funds selector looks at it they will probably look at it more like a hedge fund."
However, this throws up some asset allocation difficulties, especially for pension funds that often have clear delineations between their hedge fund and real estate portfolios.
Certainly for Hewitt Associates, which advises UK pension funds, and MN Services, which has a number of Dutch pension fund clients, property hedge funds fall under the banner of hedge funds as opposed to real estate. "We include it within hedge funds rather than real estate, so it tends to fall under that umbrella," says Nick Duff, head of property at Hewitt Associates.
And Greg Wright, senior consultant at Mercer, admits that property hedge funds have the potential to fall between the two investment areas. "That is a potential issue," he says. "It is one of those tricky ones where you have a property research team and a hedge fund research team."
Where a property hedge fund would fit into a German pension fund investment portfolio would depend on how it is defined, says Bernd Kreuter, head of alternatives at Feri Institutional Advisors.
"Many hedge funds have some allocation to property. Most hedge funds have shorted, for instance, the ABX indices [sub-prime credit default swaps]. But I wouldn't call these property hedge funds," he says.
Kreuter believes only hedge funds that take long and short positions in the listed real estate sector should be considered true property hedge funds and could warrant a place in an institutional real estate allocation.
Kruger agrees that some hedge funds "do play the property space anyway", but he clarifies that "what we are trying to do in this product is to keep away from those kinds of managers." He adds: "We are looking for managers who are very specific in their application."