Despite a trend among some investors to cull their manager bases, a large percentage of institutions are making new relationships a key driver of investment focus in the coming year.
According to the Real Estate Institutional Investor Trends for 2016 Survey from placement advisory firm Probitas Partners, 53 percent of respondents are actively pursuing relationships with new real estate managers, a substantial leap from just 30 percent in last year’s survey. Meanwhile, 44 percent of participants are evaluating follow-on commitments with current general partners while considering a limited number of new relationships. Sixteen percent of respondents said they were looking to significantly decrease the number of manager relationships, but only six percent said they would not invest in new managers over the next year.
Overall, strong attributable track record and a distinct strategy were by far the most important factors for investors when assessing new managers, with 81 percent and 69 percent of respondents, respectively, citing these factors. Only 19 percent of respondents said they specifically sought established fund managers. Other key characteristics, such as the reputation of the key men or team; attractive fund terms; a significant percentage of pre-specified assets in the portfolio; and team stability ranked higher on the priority list for investors.
The survey highlighted differences in investor perspectives, depending on where the institution was based. For example, pre-specified assets mattered greatly to 36 percent of non-North American investors but only 11 percent of North American investors. Meanwhile, 39 percent of North American respondents counted key man or team reputation as an important factor in evaluating a new manager, compared with just 14 percent of non-North American respondents.
Moreover, emerging managers continue to attract investor interest, Probitas noted in its report. “Investors who have already established large core portfolios are increasingly looking to add alpha to their portfolios by backing new managers with distinct strategies or competitive advantages,” the research piece said. “They are not interested in pursuing ‘just another opportunistic fund’ or ‘just another value-add fund’ – that is, unless its multi-cycle track record is extremely compelling.”