What is the panel’s view of future preferences for investment styles?
Robin Goodchild, head of European strategy, LaSalle Investment Management: “At the moment we would recommend investing at the opportunistic end because with yields where they are a core investor will be vulnerable if yields were to rise.”
Ian Gleeson, head of property, National Pensions Reserve Fund: “We will have a higher allocation to value-added and opportunistic funds than many other pension funds; I think the market is more conducive for those strategies. Our strategy is also based partly on the fact that we are not a pension fund but a reserve fund which in our case means that we don’t have any liabilities for 20 years.”
Allan Mikkelsen, investment manager, ATP Real Estate:“Moving all the way to opportunistic would be a big mouthful for us. From a risk point of view we are mainly focused on value-added, for the same reason as the NPRF. Among other things we use a transparency index to select where to invest - we need a good jurisdiction and solid legal platform which could be a problem in less mature markets.
“The most important task is selecting the manager with a focused strategy and a proven track record of adding value. We see a lot of newcomers and the challenge is to also select among these. But these managers want to have success in their first fund so they will work extra hard to create this value.”
Pieter Hendrikse, CEO, ING REIM Europe: “What we can see from the survey is a trend to more multi-country funds - that is an important step. The shift away from core is also due to the lack of product in the core space and the need for absolute returns; it is not necessarily because of risk. Investors need more value-added and opportunistic funds.
“If we look at the preferred locations we can see that there is interest in the traditional countries. While there is some interest in the new countries the likes of Ukraine and Russia are not seen as the most attractive opportunities at present. In 2010 the survey will definitely show a different result with these locations being more important.”
Gleeson: “Is this trend investor or manager driven? If a manager is running a European opportunistic fund he may take a wider interpretation than the client of what this means and invest in certain countries, be it Turkey Ukraine Russia, which the investor may not be comfortable with.”
What are the prospects for listed versus unlisted investment vehicles?
Goodchild: “There are many property portfolios comprising direct assets and private non-listed assets - I hope that investors will simply add listed vehicles to that, using the public market as a strategic compliment to their long term portfolio. For example, if you are a major investor wanting Euro-zone retail exposure the best way to do this is through the listed markets.
“Listed securities are big competition for the fund of fund manager. The smaller institution who wants diversified exposure will be able to achieve the same thing with much better liquidity through the public markets than through fund of fund products.
“Unlisted funds are very well established and play a very important role - they have grown fantastically over the last 10 years, but I don’t think we will see the same rate of growth in the future. Instead I think we will see a growth of listed sector which really has been stagnant for the last 10 years; the advent of the UK, German and maybe an Italian REIT will have a big impact on the market. REITs and listed markets will also be significant exit strategies for investors in unlisted vehicles; we are already seeing that in Germany.
“The UK perspective is that the public market reflects stock performance much more than direct property. In the rest of the world, especially the US Netherlands and Australia where REIT-like vehicles have been around for a long time listed real estate is part of the real estate market. I hope that is what will happen universally and particularly in the UK.”
Hendrikse: “Listed vehicles provide better access to liquidity than unlisted vehicles. The INREV survey shows that liquidity is one of the most important issues for investors and the lack of liquidity associated with unlisted vehicles is a serious concern for them. So as part of the diversification of the portfolio we will also see capital moving to listed vehicles including REITs to benefit from liquidity.”
Gleeson: “Listed real estate is closer to real estate than to equities and would serve a very useful purpose in our portfolio for a number of reasons including access to the European market where the private market is still evolving. However the performance of the listed sector over the last few years has been pretty strong and that might make us cautious about going in right now.”
How much of a concern is the cost of doing business?
Gleeson: “We want to see a greater proportion of manager fees linked to performance, thereby helping to improve the alignment of interest between us and the managers. One of the interesting parts of the survey is that investors are more concerned about the alignment of interests with their managers than are the managers themselves.
“In the past we have been invested in a fund with a certain fee structure and when we invest in its successor fund we have found that the fee load is actually higher. Is this because managers are trying to take advantage of the supply and demand? It could be that managers have got the fee structure wrong the first time around, but we still don’t like it.”
Goodchild: “The costs of multi-country funds are much higher than single country funds. Going into new countries often involves high costs such as the recruitment of new ex-pat staff. In terms of style opportunistic and value added funds need more resources, principally because they have shorter investment periods and more turnover.”
What are your thoughts regarding the future?
Goodchild: “From a UK perspective the derivatives market continues to gather momentum: deal volume will be over £2bn (€3bn) for 2006 which is about three times what it was in 2005. The UK is blessed with a direct market index that is trusted. However the indices in continental Europe are not as robust though IPD Sweden is excellent; we have particular concerns with the IPD index in Germany - we just do not believe it.”
Gleeson: “The INREV index would be a good benchmark but we just don’t have the data. Managers need to contribute data - some managers are doing so but many aren’t. Investors want to see something happen on that level and want to see managers take the index seriously.”
Hendrikse: “We should work harder on the INREV index because we need to be able to compare all funds. “
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