2020 Visions: A year for alternative assets and unique structures

North American fundraising looks to be strong in 2020, but it is expected to be led by large managers once again. Alternative assets and tailor-made structures will be of particular interest to investors as well.

Fundraising in 2019 saw many North American investors keeping their money close to home, either in large commingled funds or more direct investment vehicles.

North America remained the highest conviction region, accounting for $12 billion more than Europe, the next most popular geography. A strong and relatively stable US economy has driven this trend. But as the long growth cycle continues, rising price in traditional assets have made alternative sectors more appealing.

Campana: investors hesitant about certain traditional asset classes

Lori Campana, managing director at the Boston-based placement firm Monument Group, said investors are hesitant about investing in certain traditional asset classes. One investor recently expressed a desire for real estate strategies that are “different from the meat and potatoes,” she told PERE, including student housing, senior living and data centers, as well as a continued desire for logistics: “There’s an interest in sectors that are common sense to our everyday lives. People need housing and there needs to be last-mile distribution because we’re all ordering more online because we’re limited on time.”

QuadReal, the real estate arm of British Columbia’s pension investment corporation, is looking to build specific strategies around self-storage and senior housing in 2020, Jonathan Dubois-Phillips, the group’s head of international real estate, told PERE. Since launching in 2016, QuadReal has shifted the balance of its portfolio from 90 percent Canada, 10 percent ex-Canada to a 70/30, primarily through net-growth in other countries. Two-thirds of that growth has been in the Americas, Dubois-Phillips said, and the group now has roughly $30 billion of assets under management.

In the US and Mexico, logistics will continue to be a focus, Dubois-Phillips said. QuadReal also is looking for opportunities to invest retail properties globally, particularly assets where it can add a multifamily component. In Canada, it spun many of its core assets into an open-end fund that will be managed by RBC Asset Management, of which it will retain a 50 percent ownership stake. That fund will continued to be capitalized in 2020, however, when it comes to committing to other commingled funds, Dubois-Phillips said that is unlikely. The group is focused on joint ventures and direct investments, he said: “Our goal is to have more control over our assets, not less, so we’ll focus on platforms that maintain discretion.”

Matt Casper, partner at the New York-based advisory firm PJT Park Hill, said many large investors like QuadReal have preferred non-fund structures in recent years and he expects that trend to continue into 2020. This aligns with a desire for more tactical fundraising around specific asset classes or geographies, he told PERE. 

While managers were at first reluctant to move away from blind-pool funds, Casper said, many have come to embrace the flexibility of alternative structures: “As certain large investors have grown staff, become more sophisticated at structuring customized investment vehicles, and sought to increase their control, governance rights and discretion over how capital is deployed, managers have also become more open minded about such non-fund structures.”

It is now common for firms to launch fundraising campaigns without knowing

Casper: firms launching fundraising campaigns without knowing how the structure will turn out

whether they will be structuring a direct deal with a single investor, a joint venture, a club deal or a commingled fund. Not only has this created more opportunities for attracting capital, it has also opened the door to longer-term ownership of income-producing assets. “The classic fund framework typically forces managers to buy, fix and sell within a defined term, but now they may no longer have to be restricted to those specific time frames, and may benefit from the strategic flexibility in how they can scale and take advantage of more opportunities to create value over the long-term.”

Fundraising in 2020 will resemble 2019 in that it will see the continued departure from the historical paradigm of the private equity real estate industry, Casper said. While large, proven firms will still lead the way within the commingled fund space, the biggest investors will dictate terms that fit their specific needs. Multifamily will be a focal point, but investment capital will drive deeper into its less explored sub-sectors, such as senior and student housing.

For that capital, it will be more a case of evolution than revolution.