Robeco brings liquid portfolios to property fund investors
After European investors in open-ended property funds were irritated by the high profile closure of a number of illiquid portfolios over the past two years, many are looking to liquid ways to access real estate, according to Robeco.
The yield from property is attractive for many in a low yield climate, but potential illiquidity of the asset class is not.
The open-ended property fund sector, particularly in Germany, is in some disarray, as at least 13 portfolios are closing down, and at least five more are in limbo, suspended but not yet liquidating. By April 2017, estimates investor DTZ, €18.4bn of forced sales of property by these funds will hit markets.
The frustration of investors in open-ended real estate funds, in Germany, has been palpable, as the liquidity available in direct property investments has singularly failed to match liquidity offered at the portfolio level
The open-ended property fund sector was the object of most complaints filed with Germany’s fund ombudsman in its first quarter’s operation.
Investors’ gaze has switched to listed instruments, such as real estate investment trusts and development companies, which more liquid funds buy, says Folmer Pietersma (pictured) member of Robeco’s Thematic Equities group / real estate and financials team.
The portfolio manager adds that “a lot of high quality [property] assets have moved to the listed space,” he says. On Pietersma’s estimation, three quarters of the highest quality decile of commercial property assets are now in the hands of listed names.
Pietersma co-manages Robeco’s €360m Property Equities fund, which invests globally in stocks of companies in the property sector. He and co-manager Christian Vondenbusch seek companies with the best prospects, good earnings prospects and reasonable valuations.
The Ucits IV-compliant fund invests mainly in REITs and listed property managers and developers. At present these two sectors comprise 98% of fund assets and are split 70% / 30%.
“The [listed sphere] can move quicker and have a high profile management team and more people on board,” he says. “We do not invest in/ have those funds/companies like in Germany, ours is completely liquid, it is an equity fund.”
Pietersma concedes institutions may still also want non-listed assets because regularity of their valuation makes them less volatile in portfolios, but he says institutions are also teaming up with listed names, sometimes via joint ventures, to get involved in the asset class.
Robeco’s property equities fund beat its benchmark, the S&P Developed Property Index Net Return in euros, in 2008 (by 2.5%), 2009 (by 3.9%) and 2010 (by 1.2%), and 2011 (0.7%).
Pietersma explains he takes the approach of being regionally-neutral against the global benchmark, “but across the world and within the regions we focus on global themes”.
One is of prime real estate companies; the second is of specialist real estate companies, for example data storage centres; and EM developers, particularly those focused on commercial real estate.