global real estate securities funds
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GLOBAL REAL ESTATE SECURITIES FUNDS
AN EMERGING ASSET CLASS ?
Alex Moss, Consilia Capital
alex.moss@consiliacapital.com
ERES Conference
Vienna July 2013
CONTENTS
• Purpose of the study
• The real estate securities funds universe
• Performance
• Listed global real estate : strategies, applications, roles
• Current trends and Conclusions
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Consilia Capital 2013 www.consiliacapital.com
PURPOSE OF THE STUDY
Consilia Capital 2013 www.consiliacapital.com
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• 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
DEVELOPMENT POST GFC
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• The US has been the clear beneficiary of positive funds flow to the listed sector post GFC, followed by Global mandates.
Source: Consilia Capital January 2013
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Europe Asian Global Global REIT US
Change in RE Securities Funds 2007-2012
AuM change US$bn (L HScale)
change in no of funds (RHScale)
REAL ESTATE SECURITIES FUNDS UNIVERSE
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• 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$8.7bn in 12 months to Feb. 2013)
ETF Active Funds Total
Fund Mandate No. AuM($m) No. AuM($m) No. AuM($m)
Asian 10 892 55 3,459 65 4,352
European 10 2,603 77 11,294 87 13,897
Global Infrastructure 6 1,148 61 13,308 67 14,456
Global Real Estate 11 8,828 238 54,800 249 63,628
Global REIT 3 2,044 74 32,379 77 34,423
Japan 7 1,123 44 12,404 51 13,528
US 29 37,059 121 105,504 150 142,562
Total 76 53,697 670 233,148 746 286,845
Source: Consilia Capital, May 2013
LISTED GLOBAL REAL ESTATE FUND STRATEGIES
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Universe of Listed Real
Estate Securities
Benchmark
Indexed/ETF
Income FundsNon benchmarkHedge Fund 130/30 style
Long Only Strategies Long/short strategies
Source: EPRA report “Use of listed real estate in asset management “ by Alex Moss and Andrew Baum
RISK ADJUSTED PERFORMANCE
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• Excellent 2012 (and longer term) risk adjusted performance
• Greatest fund choice and liquidity
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No. of Funds
Sharpe Ratio
Global RE
US RE
Asian RE
Global REIT
European RE
Global Infrastructure
Real AssetsSource: Consilia Capital,Bloomberg
Source: Consilia Capital, January 2013
PERFORMANCE THROUGH THE CYCLE
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0 50 100 150 200 250 300 350Average % change from Peak
Average % change from Trough
Real Assets US
Infrastructure
GlobalGlobalREITs
Asia
Europe
Japan
Source: Consilia Capital, May 2013
• Second strongest recovery from the trough ( March 2009) • Remains below peak (Feb 2007) levels
DISPERSION OF FUND PERFORMANCE
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• Variety of strategies leads to wide dispersion of performance • Chart below shows 5 year returns rebased in US $ with returns on
horizontal
Source: Consilia Capital, May 2013
PERFORMANCE RELATIVE TO OTHER ASSET CLASSES
Consilia Capital 2013 www.consiliacapital.com
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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
Source: Professor Andrew Clare , Cass Business School
Strategy
Measure Buy and Hold Momentum Risk Parity Trend Following Combined
Average returns pa % 6.71 10.90 6.78 9.11 15.65
Sharpe ratio 0.28 0.54 0.60 0.86 1.01
Maximum drawdown % 46.60 45.12 20.46 6.86 18.34
LISTED GLOBAL REAL ESTATE : USE AND APPLICATIONS
Consilia Capital 2013 www.consiliacapital.com
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PAIF/APUT
Liquidity
DC real estate funds
Filling gaps Platform investing
FocusDirect proxy
Source: EPRA report “Use of listed real estate in asset management “ by Alex Moss and Andrew Baum
COMBINING WITH OTHER ASSET CLASSES
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A Listed real estate
B + Direct real estate
C + External unlisted real estate funds
E + Real estate debt
D + Single internal real estate fund
F + other real assets, ie
commodities, infrastructure
G + Derivatives
Source: EPRA report “Use of listed real estate in asset management “ by Alex Moss and Andrew Baum
CURRENT TRENDS AND SUMMARY
Consilia Capital 2013 www.consiliacapital.com
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• 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
CURRENT TRENDS AND SUMMARY
Consilia Capital 2013 www.consiliacapital.com
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• 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
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