Altera prepares the ground
Established at Haarlem in the Netherlands, property investment company, Altera Vastgoed was born out of the idea that property should be viewed in the same way as other asset classes.
The pension funds of KLM and Hoogovens, the joint shareholders and developers of Altera, sought to use the new company as a vehicle which would enable them to treat real estate as financial assets.
“We saw no reason why real estate couldn’t be considered and therefore treated like any other asset class,” comments Jan van de Pol, who is senior fund manager at Altera. “We want to change strategy when it comes to property investments and start handling it in the same way as equities and bonds.”
He says that formerly property within pension funds and financial institutions was invested with no real means of performance measurement and Altera’s foundation intended to change this. “What we are basically trying to accomplish, and we’re almost there, is to make the real estate investment process as transparent as possible, using the same tools that have been used for equities and fixed income for years.” He says that Altera wanted their product to be as clear and as flexible as possible.
To achieve this, KLM separated its real estate activities, both direct and indirect, from its existing pension funds, and merged them with the real estate portfolio of Hoogovens.
The way the new venture is perceived is also fundamentally important. “Altera was conceived in such a way that it wouldn’t be approached as a mere real estate company but as a real estate asset management company,” says van de Pol. He believes that this will open a realm of possibilities to be able to invest in the Netherlands on a sector level. “This is something that is at least new to the Netherlands,” he says. “We will be working from a portfolio perspective, where our properties have been securitised so they can treated like shares.” This enables them to follow a strategy instead of just moving from property to property, and this is important in assessing how it performs as an asset within a portfolio.
The fund consists of KLM’s and Hoogovens’ directly and indirectly held privately owned properties alongside self-developed real estate, and at e750m has not grown since it was established, as its managers were concerned primarily with setting it up. “We were very much focused in the first year on getting the organisation in place and getting systems set up,” says van de Pol. Things are now however beginning “to more or less function as envisioned”. “What’s happening now is that we can establish a sector policy and select a strategy in a transparent way. Each sector has its own product characteristics and with a benchmark per sector we can measure the portfolio’s performance, which was our primary objective.” The chosen benchmark is the Netherlands’ based ROZ-IPD index. This index tracks shares made up entirely of Dutch real estate.
One advantage is that it enables Altera to adopt relative performance strategies instead of tracking performance based on just its earnings per share. “Although absolute performance matters, what is essentially important to us is the concept of relative performance,” van de Pol comments.
Altera’s portfolio consists entirely of Dutch real estate and there are no immediate plans to open it up globally, despite pro European sentiment among investors. “The fact that we carry only Dutch property is unlikely to change in the short term even though many investors would like to see a more European oriented approach,” says van de Pol. He points out that this is mainly because Dutch investors understand domestic accounting, reporting and ratings methods more readily for Dutch shares.
“Hoogovens were more or less thinking along the same lines as KLM about how we might change the way that real estate is viewed, “ van de Pol says. “The discussions began a few years ago and initially centred on the problem of direct versus indirect real estate investments. Then KLM decided that it would like to manage all its properties indirectly. We discovered that Hoogovens had come to the same conclusion and thus the groundwork for Altera was laid.”
He points out that together they can pool their knowledge and expertise and this puts them at an advantage in the real estate market.
Though no other pension funds have yet joined Altera, which claims to be the first company of its kind to offer an alternative approach to property fund management, the view was expressed during the discussions that expansion would be welcomed. “We mainly expect to see small to middle-sized pension funds coming on board,” says van de Pol. He hopes that Altera’s alternative approach will attract those pension funds in the Netherlands who at present manage property investments directly but who are beginning to view it in a different light. “This may be the vehicle that will drive them to join us.” There are however no plans to open other offices at the moment.
Van de Pol is unable to speculate on company performance in the first quarter of 2001 since ROZ-IBB’s figures are not yet available but is optimistic about the future in a market which he says is in a healthy position and which is ever evolving.