Article
There are many benefits of investing indirectly in foreign real estate through funds or multi-manager products. Solutions based on net asset value (NAV) in particular feature moderate volatility and low correlation with direct real estate and traditional investments.
April 21, 2022
When investing in foreign real estate, multi-manager solutions have the advantage of broad diversification across several dimensions, including managers, funds, joint ventures, regions, and types of use. This reduces portfolio risk without sacrificing any return.
Success depends on strong regional and sector expertise and a good network of partners. It is especially important to gain a deep understanding of the long-term value drivers in the markets and sectors before investing. A top-down view on GDP growth, interest rates, inflation, and real estate macro factors, such as rental growth and supply/demand in the different regions, needs to be taken into consideration along with megatrends like urbanization, technology, demographic change, and the way they affect markets and sectors.
There are well over 1,000 unlisted real estate funds, and the number is rising constantly. These private equity real estate funds, as they are known, provide very transparent reporting to existing and potential investors. Unlike with traditional investments, however, there are no public databases that provide an overview of the investment universe or the key data for individual funds. In addition to funds, multi-manager products can also invest in customized joint ventures or set them up with suitable local partners.
A key factor in success is selecting the right partners and funds. For this, both quantifiable variables, like valuation parameters and fund conditions, as well as qualitative factors, such as strategy and team, are taken into account. Such an approach requires an investment process that is both balanced and rigorous. The relevant actors need access to reliable, up-to-date information, and should then decide whether or not to invest on the basis of a dispassionate review.
A strong presence and extensive connections in the market are equally important. In some cases, a fund management team is able to generate exclusive deal flow or access and, if appropriate, invest in funds that are rarely marketed. This is crucial for sectors such as last-mile logistics, which offer high potential but are scarcely accessible to existing funds. Fund formation strategies can also be deployed. This is where a new fund is established with a suitable partner that has a local presence, sector expertise, and a strong track record. The advantage of this is not only access to the desired sector in a particular market, it also means that capital is often deployed more rapidly. In addition, very favorable terms can be negotiated when setting up funds for multi-manager products.
Furthermore, fund managers also frequently scrutinize secondary-market transactions. These are attractive because the capital can be invested directly or fund units acquired at a price below NAV.
Considered overall, foreign real estate funds offer broad scope for diversification and attractive return opportunities. The crucial factors are a global network and focused expertise in order to be able to identify and seize opportunities that arise.
For professional clients only.
This is a Marketing Communication.
For Information Purposes Only, this presentation should not be used as a basis for investment decision.
This document is solely for the attention of professional clients, within the meaning of the MiFID, that invest on own account (including management companies (funds of funds) and professional clients that invest on behalf of their client pursuant to a discretionary management mandate). It is not intended for distribution to the public.