Three managers moved up in the rankings thanks to double-digit percentage increases in U.S. institutional tax-exempt assets. Among them are RREEF Real Estate, which jumped to fifth place from 10th with a 43% increase in assets to $12.96 billion; Starwood Capital Group LLC bumped up two spots to 10th place with a 30% increase to $9.7 billion, and Heitman had a 14.6% increase in assets to $11.7 billion moving it up one spot to sixth.
“During this period, we have achieved strong client capital flows into both existing and new and innovative products,” stated Pierre Cherki, managing director and global head of RREEF Real Estate in an e-mail. “While we benefited from some market appreciation, RREEF Real Estate's commitment to a disciplined investment approach as well as hiring key talent has contributed to strong performance in strategies such as global securities.”
J.P. Morgan had strong flows of capital into core strategies in 2010 through mid-2011, said Joseph Azelby, managing director at J.P. Morgan Asset Management in an interview. The firm's largest investor group is large U.S. institutions.
J.P. Morgan ranked second behind TIAA-CREF in P&I's listing of the top 10 managers of core assets, with $21.6 billion in the strategy. TIAA-CREF had $31.1 billion invested in core assets. J.P. Morgan also was the top value-added manager, with $6.2 billion in that strategy.
Investors again began hiring J.P. Morgan for separate accounts, Mr. Azelby said. “I think real estate on a relative basis was attractive as the equity markets started to recover and people were underallocated to real estate and had a desire to normalize the allocation.”
Among the property types tracked by P&I, the largest portion of the top 50 managers' U.S. institutional tax-exempt portfolios by weighted average — 33.6% — was invested in office and commercial properties, virtually unchanged from last year's 33.5%. The biggest gain was in multifamily housing, which grew two percentage points to 19.3%. The largest declines were in industrial properties, which dipped to 11.8% from 13%, and hotels/resorts to 4% from 4.9%.
“We continue to see nothing but homeownership percentages going down,” Ernst & Young's Mr. Grinis said. “With difficulty in financing and a negative outlook on housing, people are choosing to rent.”
For the first time, P&I separated timber and farmland in its survey. Timber accounts for 4.5% of managers' portfolios, and farmland, 1%. By comparison, last year timber and agriculture combined amounted to 5.7%. For the 12 months ended June 30, the NCREIF Timberland index return was 0.52% and NCREIF Farmland index, 11.05%.
TIAA-CREF topped the list of farmland managers with $3.4 billion in assets.
“We believe a key reason we see strong interest in agriculture today is a function of supply and demand,” Jose Minaya, head of natural resources and infrastructure investments in the Charlotte, N.C., office of TIAA-CREF, said in an e-mail. “Supplies are at historic lows in terms of inventories, yet we're seeing a global population that continues to increase, and a growing middle class in emerging markets, where people are eating more protein.”
The farmland asset class is still in its early days, Mr. Minaya noted. “Buyers of farmland today are still predominantly farmers and institutional ownership,” he said.
TIAA-CREF was also among the top 10 timber investors in the latest survey, with $1.58 billion in assets, ranking the firm in fifth place for the category.
“At the end of the day, the attraction for investors looking at agriculture or timber is inherent in its inelastic demand; a growing world population — we're closing in on 7 billion people — have to eat and live somewhere, and they need these natural resources to do so,” he stated.
Agriculture and timber also offer “non-correlated returns to traditional assets such as stocks and bonds and even commercial real estate.”