PERE Dubai: Private investors to follow SWF strategies

Private investors from Gulf Corporation Council countries are increasingly following their better established sovereign wealth fund contemporaries when it comes to deploying capital in global property markets, delegates at PERE’s second annual Growth Forum in Dubai heard today.

“A positive outcome of the global financial crisis when investors were burnt was that they learned that real estate requires long-term capital,” commented Rachid Ouaich, managing director at Wafra Capital Partners, a Kuwaiti-backed investment management business. “Now they have realized that it pays to listen to speeches where they are told to invest for 10 years-plus and be prepared to go through cycles.” He said to managers looking to pitch strategies to these investors: “There is no longer need to inflate potential returns.”

Capital outlays by Gulf-based private investors have historically been hard to track, but they are well known to trail their better established sovereign wealth fund peers in putting capital to work outside of the region. According to CBRE research, the latter group of investors deployed $13.6 billion offshore in 2015 and while unlikely to deploy into the same size deals as state investment funds, the sheer volume of private investors in the Gulf make them a coveted investor type.

Their attractiveness should increase further as they adopt similar motivations to the state funds, Ouaich said, drawing further reference to a prevailing desire to hold assets for income collection purposes, rather than to trade them. “That’s a big change,” added Richard Johnson, managing director and global head of business development at the asset management arm of Swiss bank UBS. “Given much of the wealth made here in the last 50 or 60 years has come through trading, it is a cultural change.”

Adam Calman, principal at capital advisory and investment firm Townsend Group said, however, that a typical Gulf investor with $10 million of equity has a challenge to deploy that money in international markets. “How do they do it if they don’t want to be a price-taker and buy from the brochure of an agent? It is about getting access to the right deals,” he said. “And they need to let go of the fetish of having a deal presented to them every day.”

Meanwhile, Fadi Moussalli, head of international capital markets at global property services firm JLL, highlighted Shariah – or adherence to Islamic principles – compliance as a distinguishing factor that separates the Gulf’s private investors and its state investment funds, with many of the former needing to comply while the latter do not. “Many of these investors are mindful of not contradicting their compliance. But Shariah compliance is an art, not a science.”