Market knowledge breeds success
Henderson Global Investors’ success in being voted the Best Real Estate Investment Manager, sponsored by Propex, can be attributed to a wealth of experience and resources, culminating in performances that have been second to none.
Crucially, its results over the past two years have met the expectations of investors. For the calendar years 2004 and 2005, over 90% of its assets under management met or exceeded their benchmark. This has applied across the board, both to pan-European and Europe ex-UK funds. Henderson runs 40 real estate investment mandates, of which 23 are pooled funds, 10 are funds of funds and the balance are segregated portfolios.
Three areas stand out in the group’s recent performance in continental Europe. The first is the provision of products for the German and Austrian markets. The group has a range of seven Spezialfonds created by its joint venture company, Warburg-Henderson. Five of these funds are pan-European, including one currently in the pipeline. The funds are a means of encouraging German and Austrian clients to diversify their investing into continental Europe.
The second area of excellence for Henderson in the real estate arena has been retail property. Two years ago, Henderson launched its European Outlet Mall Fund, investing in retail outlets selling discounted branded goods direct from the manufacturers. And last December, the Henderson European Retail Property Fund (Herald) came off the blocks.
Henderson has a particularly large in-house team specialising in the retail sector. It says that this concentration of resources is vital because retail is the most complex area of property investment. Not only is it necessary to research the physical aspect of the property as well as the nature of the rental agreements and reliability of the tenants: the flow of customers, and their spending patterns, are also important issues.
The group’s third major European success is its newly-launched fund of funds, the Henderson Indirect Property Fund (Europe), which is proving very attractive to European pension funds and other investors. The fund provides high diversification across different managers, countries, sectors and market cycles.
There are several factors underpinning the success of Henderson’s real estate mandates. All of them owe something to its longstanding experience of the European property market.
First comes the right structure for each fund, especially in terms of domicile. For instance, the Spezialfonds are attractive to certain markets (predominantly Germany and Austria) but not to others.
Next comes the geographical focus of a fund, and the market sector in which it invests. For example, Henderson recently launched a French fund investing in the French logistics market (ie warehousing and distribution).
A further element in the group’s success has been its investment strategy. Typically, Henderson uses the ‘core-plus to value-add’ approach - in other words, it looks at growing the value and yield from a property, rather than acting opportunistically.
Henderson says the key element in its success in this area has been the quality of the execution of deals.
The group has had a presence in continental Europe for seven years, compared with a number of other fund managers which have only recently moved in. This relatively early move into the region has given Henderson the opportunity to get to know the market well.
Another factor is the care with which properties are chosen. Henderson says it is not a “fly-in investor”. It does not just fly into a city on a Monday morning to see a couple of properties, and fly out a day later, having bought them.
Instead, the group has in-country offices staffed with a mixture of experienced managers from its UK team, and local staff experienced in local markets. It has European offices in locations including Amsterdam, Milan, Frankfurt, Paris and Vienna. This hands-on approach gives Henderson a deep understanding of the markets in which it invests. By the same token, although it sometimes acts in concert with other players in the market, it does not rely heavily on partnerships in the same way as some of its competitors.
Henderson has a strong track record in terms of the quality of its research and the availability of a large research team.The approach of its property research team is to track towns and sectors throughout the UK - at present, over 200 towns and sectors are being monitored. Over the past six years, this approach has been extended to Europe, with over 60 towns and nearly 200 markets under the microscope.
The Henderson team produces both quantitative and qualitative research of those towns and sectors, which helps identify potential areas for investment.
But the research process is not just top-down. The analysis tells managers where to look for property, but it is the bottom-up local knowledge which identifies the right assets in those locations.
The research process also helps determine asset allocation. The starting position weighting is arrived at from a variety of sources, for instance a country’s GDP. This weighting is then moderated according to where Henderson believes outperformance will occur.
For instance, with a single sector product such as a retail fund the research is used to determine the kind of investment - whether high street shop, shopping centre or warehouse - which is likely to outperform the rest of the market. The matrix is then sliced the other way to find out which countries are likely to exceed the benchmark.
It is this blend of macro research and local knowledge which has helped Henderson achieve this accolade.