Emerging managers essential for ‘credible’ LPs

Derek Williams, director of private real estate at Russell Investments, discusses points he made on stage at last month's PERE Summit: Asia about the importance of including emerging managers in its investment strategy.

It is difficult to be a credible global investor in real estate funds if you don’t include emerging managers in your stable of investment partners. That was the view of Derek Williams, director of private real estate at Seattle-based investment advisor and manager Russell Investments, on and off the stage at February’s PERE Summit: Asia.

Speaking to PERE on the sidelines of the two-day event in Hong Kong, Williams said: “We would argue it’s very difficult to invest in each region – Asia, Europe and the US – right now without appraising emerging managers. It’s just not possible to take advantage of all the opportunities in every sector without appraising emerging managers,” he added.

Williams highlighted that, despite being an emerging platform, often such managers were led by experienced professionals who had previously worked for much larger platforms. He acknowledged, however, that even though an emerging manager might have no legacy issues, the individuals in charge may have and that should form part of an investor’s assessment.

“That’s something we debate internally at Russell, whether [the issues] are with the platform or with the individual,” Williams said, pointing to the US market in particular, where many boutiques have cropped up of late.

Williams also sounded a warning regarding the relevance of seed investments in first-time funds advertised by emerging managers. Numerous platforms have launched offering visible seed investments to investors, partly in response to current antipathy towards blind-pool vehicles. However, emerging manager should not regard seed portfolios as a “panacea” or an obvious conduit to capital raising success, he says.

Williams said: “Visibility is great. But in a weakening market, the seed portfolio could work against you because, if the assets aren’t ‘marked to market’, you’re holding them at cost. That might not be attractive.”

The two-day PERE Summit: Asia took place at the Conrad Hotel at the end of February. Look for further coverage of the event in the April issue of PERE.