PERE Europe: Deutsche AWM looks to high-yield strategies

Deutsche Bank Asset & Wealth Management (AWM) is seeing signs of returning appetite for risk among investors around the world and is looking at a number of higher-yielding real estate investment strategies, delegates heard at the PERE Summit: Europe.
 
Pierre Cherki, head of alternatives and real assets, told the attendees during an on-stage interview: “We certainly are seeing growing risk appetite.” He explained that the vast majority of capital the platform attracted between 2008 and 2011 was for core real estate, where the focus was on downside protection via well-located buildings with strong tenants on long leases. He added that returns had been positive for those investments.
 
However, Cherki revealed that, since the beginning of the year, Deutsche Bank AWM had witnessed signs of risk appetite changing, especially since clients had become more concerned about the pricing of core deals.
 
“Clearly there still is a flight to quality,” Cherki said. “But when you look at where yields have moved, especially in core markets like London, Paris and large cities in Germany, many of our investors have started to become concerned. Therefore, they gradually are looking to raise the risk around these transactions.” He further explained that risk could come in the form of tenant risk, refurbishments or possibly secondary locations. 
 
Asked where in the world the demand was coming from, Cherki said US investors required a premium to invest outside of the domestic market and therefore an opportunistic strategy would be effective.
 
When it came to Asian investments, Cherki noted that the bank was seeing capital more willing to increase exposure to core-plus, value-added and opportunistic strategies. Further, such investors wanted “pretty well-identified investment strategies,” and income still was important in many cases. “They don’t want all the returns to come from capital appreciation,” he said. “There is a balance between current yield and capital gains.”
 
Asked how Deutsche Bank was responding to the change in investor sentiment, the head of alternatives and real assets revealed the bank was looking at a number of strategies both in real estate equity and debt. Underlining that the bank was still focused on managing two global opportunistic funds raised in 2003 and 2005, he said new offerings were likely to be more regional than global.
 
“What we get from our investors is that they would prefer more narrowly defined investment strategies,” Cherki said. “There are a number of opportunities we are looking at between core-plus to opportunistic as well as some debt strategies, which are becoming very interesting to us. The opportunities we currently are looking at are smaller is size and are [structured as] club deals or similar investor deals, where we have interest from specific investors for special types of opportunity.”
 
On the opportunity in credit, Cherki added that the platform was examining very closely the risk-return profile of real estate debt strategies.