Global 2009 11 02 Israel Conference Slides

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Global 2009 11 02 Israel Conference Slides

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Global 2009 11 02 Israel Conference Slides

  1. 1. Cleveland · San Francisco · Denver · London The Townsend Group How to Maximize Returns in Cross Border Real Estate Investing Tel Aviv - Nov 2009
  2. 2. Contents <ul><li>Global Portfolios – Changing Strategies </li></ul><ul><li>Real Estate – A Contrasting Role </li></ul><ul><li>When to start investing again </li></ul><ul><li>Portfolio Construction - Delivering superior performance </li></ul><ul><li>Global Markets round up </li></ul><ul><li>Investment Options </li></ul>1
  3. 3. Dividends from Israel…
  4. 4. The Townsend Group <ul><li>US Real Estate Consulting firm – founded in 1983. </li></ul><ul><li>Team of 65 across Europe & USA </li></ul><ul><li>Advise and manage over $100bn in real estate related assets </li></ul><ul><li>90 clients across the world </li></ul><ul><li>Invested over $40bn since 2004 </li></ul><ul><li>Currently has 2000 investment positions, in over 800 funds, with 150 managers </li></ul><ul><li>Voted Private Equity Real Estate Global Advisor of the Year 2008 </li></ul>
  5. 5. Typical Investor Clients <ul><li>CalSTRS </li></ul><ul><li>New York Common </li></ul><ul><li>Texas Teachers Retirement System </li></ul><ul><li>Getty Foundation </li></ul><ul><li>United Nations Pension Fund </li></ul><ul><li>Citibank Private Clients </li></ul><ul><li>China Investment Corporation (China) </li></ul><ul><li>ATP (Denmark) </li></ul><ul><li>Profimex (Israel) </li></ul>
  6. 6. How we have Invested on a Global Scale since 2004 5
  7. 7. Typical client portfolios - real estate weighting Highest 20% / Lowest 4% Median is 8% Real Estate allocation from 4% - 20% of portfolios The median is 8% 0% 5% 10% 15% 20% 25% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49
  8. 8. Future Portfolio Trends - Real Estate vs. Infrastructure 90% have it Infra set to double Real Estate is well established Infrastructure allocation set to rise significantly 0 10 20 30 40 50 60 70 80 90 100 Real Estate Infrastructure Other Real Assets % of Respondents Already Invest Planning to Invest
  9. 9. What Overall Real Estate Allocation do our Clients have… <ul><li>Alternative assets have grown from a typical allocation of 11% in 2004 to 16% in 2007 and are expected to grow to 18% by 2010 </li></ul><ul><li>Growth towards international investing </li></ul><ul><li>Public Equity exposure reduced. as characteristics are a poor match for the plan liabilities </li></ul>11 16 18 0 10 20 30 40 50 60 70 80 90 100 2004 2007 2010 Total Equity Fixed Income Alternatives (incl RE)
  10. 10. Traditional Characteristics of Real Estate that Attracted Investors <ul><li>Non correlated diversifier </li></ul><ul><li>Stable cash flows </li></ul><ul><li>Compelling risk-adjusted returns (between equities & bonds) </li></ul><ul><li>Inflation hedge ( mostly ) </li></ul><ul><li>Hard asset security </li></ul><ul><li>Tax efficient structures </li></ul><ul><ul><li>COMPARED TO GLOBAL EQUITIES – </li></ul></ul><ul><ul><li>Delivering less geographic diversification </li></ul></ul><ul><ul><li>Their revenues are increasingly globally derived… </li></ul></ul><ul><ul><li>Real Estate is still a local business </li></ul></ul>
  11. 11. Real Estate as a Local Business… <ul><ul><li>Real Estate still delivers good global diversification opportunities …. </li></ul></ul><ul><ul><li>Lease structures </li></ul></ul><ul><ul><li>Planning / zoning rules </li></ul></ul><ul><ul><li>Tax </li></ul></ul><ul><ul><li>Demographics </li></ul></ul><ul><ul><li>Valuation methods </li></ul></ul>
  12. 12. Real Estate Correlations between Countries from 1990 – 2009 Even some core markets displayed low correlations <ul><ul><li>THAT WAS UNTIL RECENTLY…… </li></ul></ul>Global Australia UK Germany France Japan 0.51 0.15 Australia 0.55 UK 0.59 0.38 Germany 0.37 0.20 0.37 France 0.57 0.41 0.57 0.40 US 0.73 0.46 0.55 0.37 0.45
  13. 13. A Stark Contrast - Correlation of Real Estate vs. Other Assets The UK Picture Source: Bloomberg IPD UK All Property, FT All Share, FT Gilts 5-15 years
  14. 14. Volatility – Real Estate vs. Other Asset Classes The UK Picture Source: Bloomberg IPD UK All Property, FT All Share, FT Gilts 5-15 years
  15. 15. 3 year rolling volatility - Real Estate vs. Other Asset Classes Source: Bloomberg IPD UK All Property, FT All Share, FT Gilts 5-15 years
  16. 16. <ul><ul><li>The World is Flat….. mostly </li></ul></ul>
  17. 17. So – Let’s ask ourselves again – What Drives Real Estate Performance …? <ul><li>Through our observance of RE cycles over the last 25 years - </li></ul><ul><li>GDP Growth </li></ul><ul><li>Employment Growth </li></ul><ul><li>Vacancy ratio </li></ul><ul><li>These a re the critical and observable leading indicators in any cycle correction </li></ul>
  18. 18. Past Economic Cycles Show GDP Leading RE Fundamentals
  19. 19. Timing is Critical - Real Total Returns over 50 years At the bottom of the cycle - expected returns are higher and risk is lower
  20. 20. <ul><li>Trough to Peak Real Returns </li></ul><ul><li>Peak to Peak Real Returns </li></ul>The timing issue is all about Income vs. Capital Growth over the cycle Property Returns driven by income – real capital growth only after a correction
  21. 21. How to Achieve Global Diversification….. <ul><li>A totally globally diversified direct portfolio would require investing…. </li></ul><ul><li>$750bn </li></ul><ul><li>Therefore the majority of sophisticated international investors use the Indirect / Fund Manager method </li></ul>
  22. 22. Manager Selection – how to outperform the market <ul><li>To construct top quartile portfolios, you need… </li></ul><ul><ul><li>Superior information on managers around the world (over 500) </li></ul></ul><ul><ul><li>Robust due diligence techniques </li></ul></ul><ul><ul><li>Thoughtful portfolio diversification tactics </li></ul></ul><ul><ul><li>Capital pacing strategies </li></ul></ul><ul><ul><li>Private market information - prove actual sources of return </li></ul></ul><ul><ul><li>AND above all - access to the top managers, which is becoming increasingly difficult </li></ul></ul><ul><ul><li>These factors are important because …. </li></ul></ul>4
  23. 23. Performance delta between 1 st & 3 rd Quartile High Return Managers over last 5 years…. 20.5% spread
  24. 24. Opportunistic Investments Are Sensitive to Vintage Period Opportunistic funds – choosing the best vintage is critical
  25. 25. What are the Key “Due Diligence “ Issues… <ul><li>Track multiple global markets for leading indicator signals </li></ul><ul><li>Construct your View Of The World (VOTW) </li></ul><ul><li>Identify managers who can deliver compelling strategies consistent with VOTW </li></ul><ul><li>Manager track record and behaviour through the cycles </li></ul><ul><li>Execution - purchase, value enhancement AND sales </li></ul><ul><li>Channels to the market opportunities </li></ul><ul><li>Credible counterparties </li></ul><ul><li>Other investors </li></ul><ul><li>Remember the “Thought Leaders” </li></ul>
  26. 26. Consider the “Off Market” Advantages…. <ul><li>Access to deals not available to other investors </li></ul><ul><ul><li>Brookfield 25% Club </li></ul></ul><ul><ul><li>Infrastructure </li></ul></ul><ul><ul><li>Capital Aggregation </li></ul></ul><ul><ul><li>Fee breaks </li></ul></ul><ul><ul><li>Improved terms </li></ul></ul><ul><ul><li>Veto rights </li></ul></ul>
  27. 27. The Results - Townsend Discretionary Performance Through careful selection we have delivered meaningful Alpha -
  28. 28. ” So how’s the market….?”
  29. 29. Overall Global Themes <ul><ul><li>UK </li></ul></ul><ul><ul><li>Europe </li></ul></ul><ul><ul><ul><li>France / Germany </li></ul></ul></ul><ul><ul><ul><li>Spain </li></ul></ul></ul><ul><ul><ul><li>Nordics </li></ul></ul></ul><ul><ul><ul><li>CEE </li></ul></ul></ul><ul><ul><li>US </li></ul></ul><ul><ul><li>Asia </li></ul></ul><ul><ul><ul><li>Japan </li></ul></ul></ul><ul><ul><ul><li>China </li></ul></ul></ul><ul><ul><ul><li>India </li></ul></ul></ul><ul><ul><li>Latin America </li></ul></ul><ul><ul><ul><li>Brazil </li></ul></ul></ul>
  30. 30. What we should be focused on…. <ul><li>Don’t buy just because it looks cheap </li></ul><ul><li>Look for “essentiality” of assets – Global Themes - Demographics </li></ul><ul><li>On cap rates – “Hope is not a strategy” </li></ul><ul><li>Income growth </li></ul><ul><li>Replacement cost </li></ul><ul><li>Opportunities are everywhere – much is by invitation only </li></ul><ul><li>Banks – they are generally lost in the task </li></ul><ul><ul><li>Difficult decision - much of it is unspoken consensus or “chatter” </li></ul></ul><ul><ul><li>Multi Year Vintages & Distress are key </li></ul></ul>
  31. 31. Next Steps - Investment Options… <ul><li>Large Institutional Investors $50 - $500m </li></ul><ul><ul><li>Individually tailored strategy – investing & reporting </li></ul></ul><ul><li>Medium sized Institutional Investor $10 - $50m </li></ul><ul><ul><li>More targeted approach - say 1 – 3 funds </li></ul></ul><ul><ul><li>Capital aggregation benefits </li></ul></ul><ul><ul><li>Brookfield etc… </li></ul></ul><ul><li>Private Investors or Smaller Institutional Investor $1m - $20m </li></ul><ul><ul><li>Profimex Global Fund of Funds (managed by Townsend) </li></ul></ul><ul><ul><li>An opportunistic fund of funds, designed to capture superior risk adjusted returns. </li></ul></ul><ul><ul><li>Spread over 10 - 15 funds where min investment is $10 - $20m </li></ul></ul><ul><ul><li>Advantages of significant capital aggregation </li></ul></ul><ul><ul><li>24 institutional investors invested in Profimex Global Fund of Fund 1 </li></ul></ul><ul><ul><li>Very small additional costs </li></ul></ul><ul><li>Institutional investors - minimum of $10,000,000 </li></ul><ul><li>Private investors (for the minimum of $1,000,000 </li></ul>
  32. 32. Israel in the World…. <ul><li>PIONEERS IN – </li></ul><ul><ul><li>Biotechnology </li></ul></ul><ul><ul><li>Information & Communication Technology </li></ul></ul><ul><ul><li>Healthcare / Medical Technology </li></ul></ul><ul><ul><li>agriculture & Irrigation Innovation </li></ul></ul><ul><ul><li>Humanitarian Aid </li></ul></ul><ul><ul><li>NOT LEADERS IN – </li></ul></ul><ul><ul><li>International Real Estate Investing……! </li></ul></ul>SO FAR….

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