World will see an increase in “specialized” regional funds

Speaking at the PERE Forum: Europe 2008 Nori Gerardo Lietz, chief strategist of Partners Group, warned that investors want a choice about where to deploy their capital and that it could come at the expense of global real estate vehicles.

Partners Group's Nori Gerardo Lietz predicted an increase in more specialized regional funds as opposed to “global” investment strategies, during the closing day of the PERE Forum: Europe 2008.

The chief strategist for private equity real estate told delegates in London that an increase in regional funds would not be mirrored by global vehicles because investors wanted to choose where to deploy their capital.

The prediction was just one of a number made by keynote speaker Lietz, who is famed in real estate circles for advising some of the world’s most powerful private equity real estate investors.

One the bright side, she said capital continued to flow into the opportunistic sector although a tail-off was expected. There would be a “disproportionate” flow to Asia Pacific and emerging markets, she insisted.

But with roughly one third of delegates at the event being fund managers, Lietz argued that times would be tough for some GPs. Returns, she concluded for 2005 to 2007 vintage years were likely to be disappointing unless GPs sold assets soon. She warned: “The most successful GPs in this market environment should be operators, not financial buyers.”

Among her other conclusions were that success for LPs was contingent on investing opportunistically; “re-upping” with the same firms in the same markets with the same strategy would result in beta rather than alpa performance with profound implications for GPs that did not have a “truly” global franchise.

She also bemoaned the continued lack of consistency in reported results and called for improvement to identify top quartile firms.

According to a survey conducted by Partners Group, some 51 percent of first time funds are focused on Asia Pacific and emerging markets, while 34.6 percent target the US and 25.7 percent Western Europe.