The Wellcome Trust has now gone four years without allocating equity to a property fund, according to UK charitable trust’s freshly released annual report. The London-based investor, which has £14.5 billion (€18 billion; $23.5 billion) in assets under management, said it had placed much greater emphasis on its direct property holdings, which now account for more than 75 percent of its property portfolio.
In a passage about real estate investments, Wellcome Trust noted that the difference in performance between its directly-owned assets and its fund investments “grew even more extreme” in 2011/2012. “We have not allocated to external property funds since 2008 and note that many of these funds have been impacted by challenging markets and management of leverage,” it stated. “Across much of Europe, including the UK, excessive lending by banks to real estate and excessive borrowing by owners was the major cause of the financial crisis and remains largely unresolved. Banks have become active in disposing of their non-domestic real estate interests, but zero interest rates have enabled them to extend domestic loans even where the value of loans significantly exceeds asset values.”
The Wellcome Trust’s £2.3 billion residential investment portfolio, which includes a large estate in Kensington, west London, was the star performer of the investor’s portfolio. It returned 18 percent in the latest financial year. Over 10 years, the residential portfolio has returned 274 percent, while direct commercial investments have returned 264 percent.
Led by investment head Danny Truell, the Wellcome Trust’s overall investment portfolio managed to return £1.6 billion, enabling the trust to make £643 million in cash payments to various charities. That level of donation is 35 percent higher than in the financial year 2006/2007, before the global financial crisis.
Earlier this year, Wellcome Trust set up its own investment company, Syncona, specifically to invest in the health and biotechnology sectors. It also has “globalised” its portfolio such that UK and other European assets now account for just 13 percent of its portfolio compared with 48 percent in 2006, providing some protection from European recession.
Furthermore, Wellcome Trust said some 33 percent of its assets are now managed in-house. Combined with illiquid investments in private equity and venture partnerships, including five multi-asset partnerships in faster growing markets, some 60 percent of the portfolio is now invested in long-term assets designed to be held for many years or even decades. Over the past five years, the main illiquid investments have delivered returns about 25 percent above those from public equities, it noted.
The Wellcome Trust’s property allocation currently stands at 10.6 percent – behind public equities (42.1 percent), private equity (27.5 percent) and hedge funds (16.1 percent). Its allocation to cash and bonds stands at just 3.9 percent.