Liquid real assets

Marc Haynes, head of Institutional Sales and Client Service for Europe, the Middle East and Africa at Cohen & Steers, has outlined plans for the US-headquartered manager in the region.

Cohen & Steers is a global manager, uniquely focused on liquid real assets and income solutions, including real estate securities, listed infrastructure, commodities and preferred securities.

The firm was founded in New York in 1986 by Martin Cohen and Robert Steers, who saw an opportunity to create the first asset manager dedicated to investing in listed property securities. This was a prescient move, coinciding with US tax reforms that set the stage for the strong growth of the US real estate investment trust (Reit) market that started in the early 1990s.

As other countries implemented Reit legislation and the markets globalised, Cohen & Steers had established itself at the forefront of this market and was among the first to develop international strategies, opening investment offices in London and Hong Kong in the early 2000s.

From that beginning, the company has selectively developed capabilities in adjacent real asset categories including listed infrastructure, commodities and preferred securities – also known as hybrids. Having listed in 2004 on the New York Stock Exchange, assets reached some $59.1bn by the end of February this year.

Besides headquarters in New York, the manager also counts offices in London, Hong Kong, Tokyo and Seattle. Marc Haynes, who joined the company in 2010, suggests that his own appointment gives a clue as to the priorities going forward, and the implications for European investors.

“The firm has traditionally ‘punched below its weight’ in the EMEA region and building out the European business is a strategic priority that will create better balance in the global client book,” says Haynes, who is responsible for sales and client services in Europe, alongside the Middle East and Africa.

“Our brand in particular, which is synonymous with liquid real assets in other parts of the world is underrepresented in the region. We have great capabilities and believe investors need what we have, arguably more today than ever before. So, my job is about execution, and how we engage with the market.

“We see investors embracing variously the ‘mega’ managers and the best-in-class specialists, but avoiding that middle ground; it’s becoming a polarised market and Cohen & Steers is firmly focused on being a specialist – we want to own the liquid real assets space.”

Having pioneered investing in listed property securities, Haynes adds that “we are recognised globally as a leader in this part of the real estate market.

“We offer among the widest ranges of listed property strategies and employ one of the largest and most experienced investment teams dedicated to global real estate securities. And as real estate is a local business, we have investors located in the ground in key markets.”

HOME BIAS

Given that physical property is very much tied to location, and given that access to vehicles such as Reits has not progressed evenly across all markets, there may be a particular challenge to engaging investors in property assets across borders. However, Haynes sees this ‘home bias’ challenge softening over time.

“While it may be true to an extent that property has taken longer to ‘globalise’ when compared to equities generally – European investors have tended to think of property in terms of private rather than public equity, which is something that is more difficult to do on a global basis. When it comes to Reits, there is another factor at play: It is in countries that were early adopters of Reit legislation, such as the US, Australia, and the Netherlands, that investors are typically most comfortable with this type of investment, specifically where there is a well-established domestic Reit market. In comparison, Reit legislation came to the UK relatively late, in 2007.

“And then in markets such as the UK, recent events have put Reits into the spotlight. As many open ended direct property funds ‘locked-up’ following the Brexit referendum in 2016, we see a growing number of investors beginning to question the logic of an investment structure in which there is an inherent mismatch in its liquidity and the illiquidity of the underlying asset. Lock-ups have contributed to all manner of challenges for investors and some are now looking to Reit funds as an attractive alternative,” Haynes notes.

BROADENING THE OFFERING

As noted, Cohen & Steers has been developing into adjacent asset classes beyond real estate, and this is something the manager is keen to continue exploring.

“We are also one of the world’s largest managers of preferred securities, which we can trace back to our early involvement in the sector when Reits were early issuers of preferreds. It was a natural development to start investing in this type of security,” Haynes says.

“But we could never have foreseen how this would become a $1trn universe, with issuance dominated by banks and insurance companies. It is a very interesting market today, often offering yields of 6% or more, largely from investment grade issuers.”

The firm started investing in global listed infrastructure in 2003, which Haynes describes as “another natural adjacency for the firm. If you take the name of a utility company, you could be forgiven for thinking it is a Reit,” He sees “great secular demand for this asset class given the growing need for infrastructure spending driven by the historical underinvestment in infrastructure in developed markets and the need for new infrastructure to contend with population growth in emerging markets.

“The need for new infrastructure cannot be satisfied by government spending alone. And while there has been considerable investment into private structures supporting infrastructure, these are difficult to access for non-institutional investors. Listed markets present an attractive option here.”

Natural resources is another area into which the business has grown and a team of commodities specialists were bought from another asset manager in 2013. Having built up capabilities across the spectrum of liquid real assets Cohen & Steers has started offering a multi-asset real assets capability to investors, albeit not yet available in a Europe fund vehicle just yet. Haynes says this could be expected by the end of 2017.

“We believe in listed real assets, and their ability to outperform or match their private equity counterparts – for example, US Reits, where the history is longest, have generally outperformed private property over time,” Haynes notes.

“And as a leading manager dedicated to the liquid real assets space, we are well placed to offer a turnkey allocation solution covering the full spectrum.” Also ongoing is the build-out of the firm’s Ucits platform. When Haynes joined there were three funds: global and European real estate securities and global listed infrastructure.

“Now we are in the process of optimising the platform, including getting local market registration in key markets including the UK and Switzerland, competitively benchmarking our pricing, and making sure we have the right share classes for distributors in different markets, including ‘clean’ share classes for those who need them.

“We are also building out our product range: as we emerge from the multi-year bear market for commodities, we see this as a very interesting time for the asset class, and we launched a commodities fund in an institutional vehicle earlier this year. Next will come a preferred securities fund, followed hopefully by a multiasset real assets fund before the year end.”

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