Friday Letter Time for the best and the boldest

Fund managers should be working hard to fill gaps in choice in 2008. 

A recent leader in The Economist on the most wide-open US presidential election since 1928 made the following point: “When voters don’t quite know their own minds, they turn to those that do. 2008 is a year for courage.”

At the risk of drawing too strong a parallel between the race for the White House and the race for real estate returns, European investors can be said to be turning to those who are courageously pursuing strategies amid change and turbulence.

The European Association for Investors in Non-Listed Real Estate Vehicles (INREV) finds in its 2008 Investor Intensions Survey that three quarters of investors who responded believe there is “adequate” supply of products. Just under a quarter of investors think there is an undersupply and less than 10 percent think there are too many.

The study comes with a caveat, as INREV points out early in its publication. It was sent to respondents last October, which means it was too early for anyone to know the effects of the credit crunch. But this should not mean investors’ sentiment towards the current choices before them will have changed for the worse in the interim. In fact, one wonders if investors are satiated specifically by fund strategies that embrace a changing world – distressed, debt, and “green” funds.

The most obvious trend has been for funds to launch that are designed to take advantage of falls in value. In the past fortnight, several new opportunity funds have emerged, perhaps the most talked about being Laxey Partners’ £1 billion (€1.3 billion; $1.9 billion) closed ended vehicle to invest in shares of UK and European property companies. (News of that fund instantly sent up stock prices of UK property majors). Other examples include investment bank Evans Randall and property investment manager Resolution Property. At its heart, the common strategy is that distress, forced sellers and lower asking prices should present opportunities.

Debt funds are presenting further choice. Rock Property Group, a real estate fund manager is on the road to raise an initial €200 million for a fund investing in all parts of the capital structure, for example. Rumours last week circulated that Moor Park Capital Partners have plans for a similar vehicle as well.

Add to the menu green funds that offer investors access to environmentally sound buildings, and the choice is even greater. Climate Change Capital, an investment bank specialising in opportunities in a low carbon economy is said to be raising a real estate fund, for example.

If true, this could turn out to be a clear example of a fund for the brave, because such vehicles have not been tested. It is no bad thing, though. Fund managers should be working hard to fill gaps in choice and 2008 does seem to be the year for the courageous. Good luck to them all.