Whatever the point in a market cycle, certain topics have a habit of rearing their heads. For me, last month’s was style drift, one of the market’s traditional taboos.
Two bits of news, coincidentally each involving Los Angeles-based managers, provoked debate about whether, actually, all style drift should be considered bad. Both are covered in this magazine.
In early February, and after years of producing opportunistic real estate funds, Oaktree revealed plans for a value-add fund. A style drift.
Later in the month, news emerged that CBRE Global Investors was to merge the value-add strategy of its Asia platform with that of the Asia business of its indirect investment and partnerships division, CBRE Global Investment Partners. The latter business, along with the entire multi-manager sector for that matter, has actually been subject to style drift for years. The resource amalgamation happening there is proof of just how far the sector’s style has drifted into mainstream property investment management.
But should Oaktree’s or CBRE Global’s investors be too concerned? That’s a debate. In news editor Evelyn Lee’s Stateside commentary, she calls for clear distinctions to be articulated between Oaktree’s traditional and new offerings. After all, the value-add fund is being introduced even before Oaktree’s seventh opportunity fund has closed and so concurrent capital potentially chasing similar properties is on the cards.
CBRE Global, meanwhile, intends to bring forth a first vehicle under the new set-up imminently. It must explain why its supposedly indirect division has evolved to the extent it has become just as much a direct division.
The catalysts behind these events no doubt differ. Oaktree’s new fund could well be a straightforward response to tighter US market conditions, while CBRE Global’s might have more to do with appropriate resourcing. Regardless, if these style drifts make sense in their context, should it really matter to their investors?
I would argue that style drift between funds should be considered as less heinous than style drift within funds. I would also argue that style drift at the higher end of the risk-return spectrum is less a sin than at the lower end. Of course, capital support for both Oaktree’s and CBRE Global’s incoming funds would prove whether their investors agree.