Sir Ronald Cohen, the co-founder of Apax Partners, has achieved many things in his illustrious career, but he will not be able to add the successful management of a real estate hedge fund to the list.
Portland Capital, a London-based firm he backed in 2006, is winding down after dismal returns from the Portland Global Real Estate Securities Fund.
At its peak in 2008, the open-ended vehicle had around $180 million of assets under management but volatility in listed securities helped push it into negative returns. The company is now being wound down, leaving Sir Ronald to concentrate on Bridges Ventures, a private investment house that manages the Sustainable Property Fund among others.
Portland blames double the usual amount of volatility in listed securities for its demise. The real estate fund was to have been the first in a series of products for the firm. Instead it will remain the only one before it legally shuts down. The positions have all been liquidated and money is being handed back to investors.
Portland is not the only firm to fail to make a success of a real estate hedge fund.
A number of other real estate hedge funds launched in 2006, and more recently, have also shut, including one managed by Dutch investment bank’s Kempen Capital Management. That fund closed in January 2009 with around €135 million of assets following a reported “double digit loss”.
However, despite the recent failures there is evidence of a potential resurgence for real estate hedge funds, as returns start to recover.
Data provider, Hedge Fund Research, said in December new hedge fund launches exceeded the number of liquidations in the third quarter of 2009 for the first time since the financial crisis in the middle of 2008. Around 554 had been launched by the end of the year, though the number is well down on the average of 1,400 a year pre-crunch.
More specifically, in real estate, some firms believe now is the right moment to launch a listed securities hedge fund.
Reech CBRE, a London-based joint venture between property services firm Richard Ellis and hedge fund
manager Reech Aim, last month launchedSpire, which expects to have an initial investment capacity of €200 million
Christophe Reech, chairman and chief executive, said most of the real estate hedge fund industry had not survived the crisis well. However, he added: “We survived the crisis very well and are developing a large number of new products exactly now because we think it is perfect timing for doing so. Yes it has been volatile, but that has always existed in real estate listed vehicles.”
He added that real estate remained an attractive proposition in the short term and long terms, where the macro economy would have an impact – positive or negative – on real estate. “That generates interesting opportunities, and not solely buying physical assets,” he said.