IPE RE Global Awards: Currency causing headache for global diversifiers
Currency, costs and tax were named as the three largest obstacles to investing in foreign real estate by delegates at the IPE Real Estate Conference & Awards in Munich on Tuesday.
A poll of the audience of 360 delegates revealed it was mainly today’s high costs of hedging that created difficulties investors seeking to diversify their real estate portfolio globally.
Speaking on a global investment panel, Rainer Komenda, head of real estate funds at the Bayerische Versorgungskammer (BVK), said: “We have been hedging everything, but especially hedging the dollar has become very expensive, so we are discussing new models including a currency overlay.”
But the panel showed that currency hedging preferences were different for every investor.
Tony Brown, CIO at M&G Real Estate, said: “All our funds are unhedged – save some funds in Asia where there are many different currencies.”
Martin Brühl, CIO at Union Investment Real Estate, said: “We only invest in euro-denominated funds because everything is too volatile.”
This volatility and uncertainty is also influencing US investors’ behaviour, said Indeesh Bhogal-Tangeraas, head of EMEA Real Assets at Cambridge Associates.
“We have noticed that there is a lot of ‘wait and see’ happening now, whereas historically US investors have been very active coming into Europe,” she said.
Tax was another “painful” subject for foreign investors, noted Brühl. However, he added: “You have to go global to open the universe. But when taxation meets with your local regulation it becomes difficult.”
Jeff Jacobson, Global CEO at LaSalle Investment Management, who moderated the panel, urged investors to first carefully consider why they were looking for global diversification.
“Not every investor needs to invest globally and over the long term investors in some of the bigger, deeper markets with big domestic real estate – like the UK, US, Australia – have performed better on a risk-adjusted with a domestic-only strategy,” he said.
But, he emphasised, there was “no better or wrong way” just careful consideration of questions regarding the role of real estate and the advantages of non-domestic exposure.
For François Trausch, CEO of Allianz Real Estate, the primary question is defining “home markets” for each investor. “We are a global company,” he said. “So if we have big ambitions on the insurance side to go global, then being an investor in those countries will be good for local presence.”
He pointed out the importance of scale for investments in the portfolio. “When you diversify into a new region and only have a small exposure that means you only have all the hassle but not the desired effect,” he said.
Asked about their best and worse investment decisions, the panellists divulged quite varied experiences.
Today, he is looking at all sectors for “risk-adjusted opportunities” rather than just one asset class, but “I’m personally still a big fan of high street retail, across Europe”, he said.
For Trausch and “a company of our complexity” investing in small managers “does not work well” he noted.
“We rather place large amounts with large managers. For example, in shopping centres in Ireland where we see good performance in a strong market.”
Additionally, Allianz Real Estate has 50-60% in real estate debt. “This is a very good product for insurance companies and the US is one of the best debt markets,” he said.
Bhogal-Tangeraas mentioned three “lessons learned” in investing abroad: “Operators tend to outperform allocators; specialists are often better than generalists, and emerging market managers often outperform larger established managers.”
She added: “Size matters. That means we saw that very, very large works and niche works, but in the middle it tends to be a bit difficult.”