Follow the LP

In late March, approximately 700 delegates gathered at Boston's InterContinental Hotel for the 2007 spring conference of the Pension Real Estate Association, which featured a keynote address by Mike McCaffery, the former head of Stanford Management Company and now the chief executive officer of Makena Capital, as well as a speech by David Brooks, a columnist for The New York Times.

PREA-sponsored events typically bring together some of the largest gatherings of limited partners in the US real estate community. Yet according to one LP who attended the conference, less than 10 percent of the registrants were actually institutional investors; the rest were fund managers, accountants and other third-party advisors.

Based on anecdotal evidence—or the crowds that typically form around the dais after an LP panel concludes—9-to-1 actually seems like a normal ratio of conference delegates to limited partners. Given their position at the front end of the private equity real estate food chain, not to mention the billions of dollars under their control, institutional investors are always in demand.

Yet in recent years, LPs have not wielded they power they once held. Capital has become a commodity, and the vast pools of money controlled by institutional investors are no different. If The Blackstone Group wants to raise $10 billion (€8 billion), it will raise $10 billion; and it will raise the funds without much negotiation. If you don't want to invest, there are plenty of others willing to take your place.

In recent years, LPs have not wielded they power they once held. Capital has become a commodity and the vast pools of money controlled by institutional investors are no different. If The Blackstone Group wants to raise $10 billion, it will raise $10 billion; and it will raise the funds without much negotiation.

That may be a simplification—GPs don't treat their LPs so callously, at least those that want to be in business when returns aren't so rosy—but LPs certainly seem to have faded from view. GPs dominate the headlines, make most of the money and, particularly in recent years, poach the industry's best talent.

But it would be foolhardy for anyone to ignore the sentiments of the LP community. After all, they are the lifeblood of the industry, the source from which every fund manager, new or old, raises capital. And the issues they face, day in and day out, are crucial in understanding the evolution of the industry.

In a brief nutshell, some of those issues include: alternative investment mangers going public; the super-sizing of private equity real estate funds; the quick and massive recycling of capital; movement into international markets; and the difficulty of retaining internal talent.

In the pages that follow, we speak with three leading limited partners to get their take on these issues and many others. First, we talk with Edgar Alvarado, the head of real estate equity funds at Allstate Investments, which is looking to grow its commitments to the asset class up to $1 billion per year. Alvarado, a Blackstone investor, also offers his thoughts on the private equity firm's potential public listing. (Teaser: He's not too happy about it).

Next, we head up north to Canada to speak with Andrea Stephen, executive vice president of investments at Cadillac Fairview, the real estate arm of the Ontario Teachers' Pension Plan. One of the largest direct investors in the institutional community, Cadillac Fairview has recently been making inroads into Brazil, and in her interview Stephen gives us a brief preview of other emerging markets of interest. (Hint: It's on the southern tip of Africa).

And finally, we move to Europe, where we talk with Patrick Kanters, managing director of real estate for Europe and Asia-Pacific with ABP Investments, one of the largest property investors in the world. Kanters gives us his views on a variety of topics, from his firm's moves into Asia to the most promising areas for investors in Europe. (In his opinion, check out Paris and Scandinavia).

As evidenced by the backgrounds and opinions of our three subjects, the LP community is as diverse as any other aspect of the private equity real estate industry. Yet, in some ways, they all share the same goal: to make as much money for their clients (or pensioners) as possible while taking the least amount of risk. Of course, that is becoming an increasingly difficult thing in today's environment. But it won't stop our LPs from trying. Or from pushing their fund managers to do the very same thing.