Global Real Estate Securities Funds

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Overview of trends in the global real estate securities funds sector. Presentation to ERES Conference July 2013

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Global Real Estate Securities Funds

  1. 1. GLOBAL REAL ESTATE SECURITIES FUNDS AN EMERGING ASSET CLASS ? ERES Conference Vienna July 2013 Alex Moss, Consilia Capital alex.moss@consiliacapital.com
  2. 2. CONTENTS 2 • Purpose of the study • The real estate securities funds universe • Performance • Listed global real estate : strategies, applications, roles • Current trends and Conclusions Consilia Capital 2013 www.consiliacapital.com
  3. 3. PURPOSE OF THE STUDY 3 • Historically the sector has been relatively straightforward: actively managed, benchmarked vehicles, providing exposure to the global listed real estate sector. • More recently there have been a number of developments, in particular: • • • • • • • Cost pressures: Increased use of lower cost, passive vehicles (ETFs) Funds flow: Large inflows into Global REIT strategies from Japanese investors Liquidity bias: Emphasis on “liquid” strategies Search for Income: Investor demand for income oriented funds Non market cap index strategies: Interest in alternative index strategies (“smart beta”) Diverse Product use: Use of Global REIT trackers for the increasingly important Defined Contribution market Competition: Competing for same capital pool as Infrastructure Funds • The purpose of this study is to examine the development, current structure and performance of the sector to ascertain how it will respond to these developments. • Two main sources have been used :EPRA Report – Use of listed real estate securities in asset management, and Consilia Capital Monthly Funds Monitor Reports Consilia Capital 2013 www.consiliacapital.com
  4. 4. DEVELOPMENT POST GFC 4 • The US has been the clear beneficiary of positive funds flow to the listed sector post GFC, followed by Global mandates. Change in RE Securities Funds 2007-2012 90 90 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 -10 0 Europe Asian Global -20 Global REIT US -10 -20 Source: Consilia Capital January 2013 Consilia Capital 2013 www.consiliacapital.com AuM change US$bn (L H Scale) change in no of funds (RH Scale)
  5. 5. REAL ESTATE SECURITIES FUNDS UNIVERSE 5 • • • • In the Consilia database we monitor just under 750 funds with combined AuM of US$286bn. This compares to a global listed sector valued at US1,155bn (source: EPRA May 2013). i.e. specialist funds represent c. 25% of the listed sector . The true figure for dedicated funds is higher than this , due to separate account mandates. Global funds represent c. 22% of the total AuM, and Global REIT Funds around 12%. ETFs represent c.19% , but is the fastest growing sector. ( ETFs linked to EPRA Global Index +85% to US$8.7bn in 12 months to Feb. 2013) Fund Mandate Asian European Global Infrastructure Global Real Estate Global REIT Japan US Total ETF No. 10 10 6 11 3 7 29 76 AuM($m) 892 2,603 1,148 8,828 2,044 1,123 37,059 53,697 Active Funds Total No. AuM($m) No. AuM($m) 55 3,459 65 4,352 77 11,294 87 13,897 61 13,308 67 14,456 238 54,800 249 63,628 74 32,379 77 34,423 44 12,404 51 13,528 121 105,504 150 142,562 670 233,148 746 286,845 Source: Consilia Capital, May 2013 Consilia Capital 2013 www.consiliacapital.com
  6. 6. LISTED GLOBAL REAL ESTATE FUND STRATEGIES 6 Universe of Listed Real Estate Securities Long/short strategies Long Only Strategies Benchmark Non benchmark Income Funds Hedge Fund 130/30 style Indexed/ETF Source: EPRA report “Use of listed real estate in asset management “ by Alex Moss and Andrew Baum Consilia Capital 2013 www.consiliacapital.com
  7. 7. RISK ADJUSTED PERFORMANCE 7 • Excellent 2012 (and longer term) risk adjusted performance • Greatest fund choice and liquidity 300 Global RE 250 200 US RE No. of Funds 150 Asian RE European RE 100 Global Infrastructure 50 Source: Consilia Capital, Bloomberg 0 0.00 Global REIT Real Assets 0.50 1.00 1.50 Sharpe Ratio 2.00 2.50 Source: Consilia Capital, January 2013 Consilia Capital 2013 www.consiliacapital.com 3.00
  8. 8. PERFORMANCE THROUGH THE CYCLE 8 • Second strongest recovery from the trough ( March 2009) • Remains below peak (Feb 2007) levels 30 Infrastructure 20 10 Average % change from Peak Asia Japan Real Assets US 0 0 -10 50 100 150 200 Global REITs 250 300 350 Global -20 Europe -30 -40 Average % change from Trough Source: Consilia Capital, May 2013 Consilia Capital 2013 www.consiliacapital.com
  9. 9. DISPERSION OF FUND PERFORMANCE 9 • Variety of strategies leads to wide dispersion of performance • Chart below shows 5 year returns rebased in US $ with returns on horizontal 6000 5000 4000 3000 2000 1000 0 -60 -40 -20 0 20 40 60 Source: Consilia Capital, May 2013 Consilia Capital 2013 www.consiliacapital.com
  10. 10. PERFORMANCE RELATIVE TO OTHER ASSET CLASSES 10 1993-2011 • Superior returns ( raw and risk adjusted) • Maximum drawdown, however, is inferior. • Studies show that with mechanical trading rules based on momentum, risk parity, and trend following portfolio maximum drawdown can be reduced dramatically Measure Average returns pa % Sharpe ratio Maximum drawdown % Strategy Buy and Hold Momentum 6.71 10.90 0.28 0.54 46.60 45.12 Risk Parity 6.78 0.60 20.46 Trend Following 9.11 0.86 6.86 Source: Professor Andrew Clare , Cass Business School Consilia Capital 2013 www.consiliacapital.com Combined 15.65 1.01 18.34
  11. 11. LISTED GLOBAL REAL ESTATE : USE AND APPLICATIONS 11 Direct proxy Liquidity DC real estate funds PAIF/APUT Filling gaps Focus Platform investing Source: EPRA report “Use of listed real estate in asset management “ by Alex Moss and Andrew Baum Consilia Capital 2013 www.consiliacapital.com
  12. 12. COMBINING WITH OTHER ASSET CLASSES 12 B + Direct real estate C + External unlisted real estate funds G + Derivatives A Listed real estate F + other real assets, ie commodities, infrastructure D + Single internal real estate fund E + Real estate debt Source: EPRA report “Use of listed real estate in asset management “ by Alex Moss and Andrew Baum Consilia Capital 2013 www.consiliacapital.com
  13. 13. CURRENT TRENDS AND SUMMARY 13 • The European listed Universe remains too small (c.12% of the Global Index) to warrant new Fund launches, with Global the most popular mandate for new Funds. • New global funds being launched require a greater strategy than purely sector exposure to gain credible AuM. • Existing Funds with insufficient critical mass are being wound down/integrated • Fund strategies either recently launched or in the process of being launched have focussed on : • Income • Long/short, 130/30 style • Multi factor optimisation models • Liquidity provision for DC schemes Consilia Capital 2013 www.consiliacapital.com
  14. 14. CURRENT TRENDS AND SUMMARY 14 • There has been increased interest in using Global listed real estate securities funds in multi asset portfolios with ; • All other asset classes • Purely real estate assets • Other “real assets” , infrastructure, commodities • Possible future Fund styles would include: • Sector specialisation – Global Office, Global Logistics etc. • Real estate specific “Smart Beta “ funds, particularly Fundamentally Weighted selection with a liquidity weighting • The greatest current challenge are : 1) The competition for capital from infrastructure funds 2) Downward pressure on fees, hence the increased interest in passive strategies Consilia Capital 2013 www.consiliacapital.com

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