Recent fund launches suggest that if fund managers are running out of big ideas, they aren't short of big ambitions
Infrastructure continued to spawn funds - though in niche areas, targeting increasingly sceptical investors. Elsewhere, country-¬specific funds reflected investor interest moving in two directions at once. Italy in June inspired two new real estate funds aimed at overseas pension funds as their domestic counterparts continued to offload their property assets.
Novelty, at least in the UK property market, will come from alternative approaches - in the form of the imminent launch of a fund invested in UK residential derivatives and, more remotely, in the launch of a UK property hedge fund.
Fund manager Alpha Beta says its soon-to-launch derivatives fund will boost pension funds' residential (compared with commercial) allocations, offering hitherto limited access to the UK's largest asset sub-class.
Does the derivatives market have traction? Risk-wise, possibly. The managers claim that, because they are closely correlated to wage trends, residential derivatives are a closer match than other asset classes to pension fund liabilities. In Q1 2007 alone, transactions in UK property derivatives totalled €4.3bn. The market has completed deals worth €11.2bn since its apperence in 2004.
Road to nowhere?
Infrastructure discovered categories fund managers at one time would barely have imagined - and demand is coming largely from European pension funds, according to 3E Car Park Investors, which in June launched a fund to invest in Central European car parks. The fund, which has a target size of €600-700m, will aim for a return of 8%. Its managers claim carparks generate 8-9% yields compared with average yields elsewhere of 6-7%. They believe pension funds, needing to reap higher-than-average yields, will make up the majority of investors. Three unnamed institutions raised €50m before the fund's first closing.
Against this trends towards niche funds, Morgan Stanley last month launched the largest ever real estate fund with $8bn (€5.8bn) in equity investments in mature and emerging markets including, in the former category, Japan, Western Europe, and Australia and, in the latter, China, India, Russia, Turkey and Latin America. The fund manager has already invested 20% of the equity raised from institutional investors in Europe, the US and the Middle East.
Strong capital inflows from new investors in real estate, including pension funds, account for the size of the fund - in addition to an increase in real estate allocations from existing investors.
The fund is double the size of the second global fund closed last month by Goldman Sachs. The Goldman Sachs $4.07 bn (€3.4bn) Whitehall Street Global Real Estate fund has attracted more than 350 unnamed investors.
Where all roads lead
Italy is the investment equivalent of yoga. Whatever pension funds want - low risk, high returns, market transparency - Italy's advocates will claim it can deliver.
In June Cordea Savills outdid previous claims with the Italian Opportunities Fund II, which is targeting returns of 20%.
Fund manager Nick Hayward says acquisitions involve corporate or government agencies selling property they have not previously managed as an asset.
Opportunities for under- and mis-pricing created by lack of transparency and scarcity of prime real estate assets dictate the fund's opportunistic strategy.
According to Hayward, pension funds will invest in the fund because it is "a low-risk way of getting opportunistic returns in a Western economy with supply constraints".
In short, the suggestion is that Italy offers what other mature European markets have largely ceased to offer.
Scarcity of assets was the selling point of a second fund, recently launched by ING Real Estate. The fund, with a target size of €1bn, revisits a familiar theme - core and value-added shopping centres - with a view to good rental prospects generating returns of between 10-12%.
According to fund manager Florencio ¬Baccar, the fact that assets would be difficult to get hold of would make the fund dependent on off-market transactions - but was not necessarily negative.
Are pension funds buying? It's difficult to say.
If European pension funds are, as Hayward claims, obvious buyers for high-return real estate assets, the domestic trend is for Italian pension funds to dispose of theirs.
Enpam, the Italian pension fund for doctors and dentists, in the latest example sold a 29-property portfolio for €305m to Pirelli Real Estate (35%) and Global Opportunities Fund II, a fund managed by Deutsche Bank subsidiary RREEF (65%).
Pirelli Real Estate, which describes itself as "the pensions institutions' player of choice", has been the recipient for more than one Ensam-owned portfolio. The current portfolio is scheduled for inclusion in Pirelli's Social & Public Initiatives fund. An earlier divestment, of a 19-asset residential portfolio, went to Pirelli's Diomira fund in July 2005.
Asia - the new Europe
Recent continued enthusiasm for well-worn categories (mature Europe, Nordic economies and infrastructure) may give way to emerging categories, notably Asian real estate. LaSalle Investment Management recently announced that it would treble its investment in Asia to US$20bn within four years via funds invested in mature Asia markets such as Japan and ¬Singapore, as well as emerging market such as China. The announcement coincided with the appointment of Philip Ling, former CEO of
Australian firm Lend Lease Investment ¬Management, as managing director for the Asia-Pacific region.
