Cohen & Steers pulls out of private equity real estate

Cohen & Steers, the New York-based global investment manager, is pulling out of private equity real estate.

The decision by the company, which has been listed on the New York Stock Exchange since 2004 and has approximately $47.8 billion of assets under management, is leading to the departure of the firm’s Global Realty Partners multi-manager team led by Steve Coyle.

Coyle is departing Cohen & Steers this Friday, according to a note he sent to clients yesterday. In an email, he wrote: “This Friday, August 9th will be my last day at Cohen & Steers. The firm has decided to no longer be active in the private equity real estate space. As a result, my team and I will depart the firm effective this Friday.”

He added: “It has been a pleasure to work with you during my last five years at Cohen & Steers. My team and I are currently reviewing a number of options I hope to be in touch shortly with information (with regards) to a new home for our business activities.”
 
Cohen & Steers could not immediately be reached for comment. The company has several investment strategies across asset classes listed on its homepage. It lists real estate securities, real assets, preferred securities, global listed infrastructure, large cap value and private real estate opportunity. Links on all the separate business lines take page visitors through to further information, with the exception of the link to “Private real estate opportunity” which appeared to be no longer active.

Cohen & Steers hired Coyle and a team to start up a new real estate fund of funds business in 2008, saying the team would invest in commercial real estate through institutional, value added and opportunistic private real estate funds. Coyle had previously worked as chief investment strategist and fund of funds portfolio manager with Citigroup Property Investors (CPI). Cohen & Steers also hired Dev Subhash from CPI where he served as assistant portfolio manager under Coyle. He became senior vice president for his new employer's global private real estate opportunity strategy.

However, lately there have been signs of the company being less enthusiastic about private real estate.

In June, Cohen & Steers published the latest in its annual “The Truth About Real Estate Allocations” series assessing the performance of public and private real estate markets.

The white paper said: “Once again, based on 2012 results, our analysis of short-and long-term trends pointed to the outperformance of listed real estate, compared with nearly all categories of private real estate funds.”
It added: “In our view, the current pricing parity between listed REITs and private real estate fails to justify the high allocations to direct property typically found in corporate and public pension plan portfolios. If the private market is right, then there is likely room for listed REITs to appreciate further. Conversely, if the public market is correct, then private core real estate is likely to disappoint today’s buyers.”

“Returns for opportunistic funds were comparable to listed REIT returns over the long term; however, the return cycles for these two strategies have been out of phase, resulting in distinct periods for each and creating opportunities for complementary diversification benefits between the two strategies.”

The report also said: “Core and value-added fund investors have not experienced any return premium in exchange for illiquidity. Assuming the vintage year is selected properly, opportunistic funds have been attractive for distressed, capital-appreciation-oriented real estate strategies.”

In 2009, Coyle said in an ‘outlook note’ to clients that a third of all private fund sponsors could disappear in the fallout of the real estate crisis. He explained how the availability of debt was now coming back to haunt some investors.

“Many funds will become zombies, attempting to delay the inevitable takeover by their lenders,” he wrote. “Who will survive? It is too early to say, but we expect that upwards of 30 per cent of all private sponsors will cease to exist.”