Two different regions, two different strategies. That’s the approach that Denmark’s Sampension is taking to real estate investment as it builds its property portfolio in the US while continuing to deploy capital in Europe.
While Sampension has been investing in real estate domestically for 30 years and in Europe for 21 years, the Danish pension plan entered the US market just two years ago. This is the principal reason why the institution is targeting value-added investments in the US as opposed to core direct real estate plays, like it does in Europe.
“The US is not our own backyard, so we feel more comfortable making direct investments domestically or in some European countries like the UK, Germany and France, where we already have made investments prior to this,” said Anne Charlotte Mark, head of equities and alternatives at Sampension. “However, when it comes to the US, we want exposure via funds and we want to have a higher risk-return profile.”
In some ways, higher return expectations and commingled fund structures go hand-in-hand. “It’s always very difficult to time the market, and it’s especially difficult within alternative assets like this because you commit to a fund and you don’t know how fast the money will be invested,” Mark explained.
Sampension, which manages DKK150 billion (€20.1 billion; $27.5 billion) in assets, made its foray into US real estate primarily as a cyclical play. In 2011, the US for-sale housing market was still challenged by a lack of available financing, which made multifamily opportunities particularly attractive, Mark noted. “We didn’t have any exposure to the US and, when we saw what was going on in the economy and our expectations there, we thought it was good timing to start getting exposure,” she said.
Today, US real estate exposure remains important to Sampension’s property portfolio because of its more stable economic position relative to Europe. However, the investment officer stressed: “The US is definitely a long-term strategy.”
To date, the Danish pension plan’s real estate holdings in the US have been relatively small, currently making up just 6.6 percent of its $1.6 billion overall property portfolio. However, Mark points out that not all of Sampension’s real estate commitments have been drawn down and that its US allocation would increase to approximately 14 percent once all of the capital has been deployed. That allocation consists of commitments to Greystar Real Estate Partners’ value-added multifamily funds, Greystar Equity Partners VII and VIII, as well as an investment in Brookfield Asset Management’s Brookfield Strategic Real Estate Partners.
Additionally, Sampension set up its first US real estate separate account, Sampension US Real Estate I, this year with the goal of pursuing value-added investments in commercial property, excluding multifamily. In May, the pension plan committed $90 million to the vehicle, which will be administered by Goldman Sachs, according to a filing with the US Securities and Exchange Commission.
Although the investments made through the separate account will be done on a direct basis, Mark still views those deals as different from its direct property bets made in Europe. While Sampension typically sources its own investments in Europe, it will rely on Goldman to identify deals stateside.
Over time, Mark expects the pension plan to slowly increase its exposure in the US. “We are in no hurry,” she said. “We are a bit careful with getting too high of a specific vintage allocation to any market.” Indeed, Sampension made just one US real estate investment each year in both 2011 and 2012 and two this year.
Future allocations to US real estate largely will depend on the size of net inflows to Sampension and the performance of the different asset classes within the institution’s portfolio, according to Mark. However, she expects that the pension plan will invest $50 million to $100 million through one or two commitments in the US annually over the next two years. Investments likely will be a mix of funds and separate accounts.
Earlier this year, Sampension’s real estate team was integrated into its alternatives team following the retirement of former real estate head Henrik Kolind. Aside from Mark, the alternatives group includes four investment officers, including one dedicated to real estate and three others that divide their time between real estate, private equity, timber and infrastructure.
Unlike most US pension plans, Sampension does not work with an outside investment consultant and conducts its own due diligence on potential transactions. Therefore, having one consolidated alternatives team will help the pension plan to maximize its limited resources, Mark explained.
“If we are looking at the real estate bucket, we can use resources for that and, in times when we’re not seeking investments there, we can use resources to look at other asset classes within the alternatives space,” Mark said. More importantly, “you don’t get these silo views; you just see where you have the best opportunities.”