Assets in the $75.6 billion open-end real estate fund universe have grown by almost half in the past six years, but only a few of the funds are getting a majority of the money.
On the other end of the spectrum are Deutsche Bank subsidiary RREEF and Clarion Partners, the sources say.
There is no shortage of managers offering open-end funds — 18 funds in 2011, up from 14 funds in 2005 — but there's a wide dispersion among them, according to the NCREIF Open End Diversified Core Equity index.
“Entry queues range from hundreds of millions to $3 billion for individual funds,” said Avery Robinson, vice president in the real asset consulting group of consultant Callan Associates Inc., San Francisco.
Before Deutsche Bank AG announced last month that it was in exclusive negotiations with Guggenheim Partners LLC for the sale of its RREEF alternatives arm and two other subsidiaries, a steady stream of investors — including the $48.1 billion Massachusetts Pension Reserves Investment Management Board and Oregon Investment Council, which manages the $56.9 billion Oregon Public Employees Retirement Fund —were lined up to pull out of RREEF America II, an open-end diversified core commingled real estate fund. Neither Deutsche Bank spokeswoman Mayura Hooper nor Suzanne Franks, vice president of New York-based Clarion Partners, would comment.
A number of open-end fund managers contacted declined to provide fund details, most citing legal and Securities and Exchange Commission rule concerns.
But according to a November report to the investment committee of the $13 billion State Universities Retirement System of Illinois, Springfield, RREEF America III had a redemption queue of 33.4% of the total shares outstanding as of Sept. 30, the report noted. Illinois SURS has been in this redemption queue about two years. For the year ended Sept. 30, RREEF America III received six redemption requests representing $41 million. The Illinois universities retirement fund has retained its investment in RREEF America II and two RREEF real estate investment trust funds.
“Performance in 2008 and 2009 was for every investment manager its report card,” Kevin Faxon, managing director and head of real estate-Americas for New York-based J.P. Morgan. “If you made a mistake, clients knew, consultants knew it, everybody knew it.”
And now the managers are feeling the effects of that.
Money is being concentrated in fewer open-end funds, Mr. Faxon said. J.P. Morgan Asset Management's open-end real estate fund has a $1.5 billion commitment queue, he said.
“At the other end of the spectrum, funds have performance challenges,” Mr. Faxon said, citing investment executive turnover and sales of investment firms like RREEF and the management buyout of Clarion Partners. “Those are ownership issues that can create challenges. These conditions are not conducive to clients investing money,” he said.
Top-quartile managers are reaping the benefits of their performance record, bringing in new commitments, Callan's Mr. Robinson said. They are assuring investors that they will be “sticking to their knitting.”
Heitman's $1.7 billion open-end fund has an entry queue, but firm executives declined to give the size of the line of investors waiting to invest in the fund.
UBS Trumbull Property Fund, an open-end core fund, had a deposit queue of $2.6 billion, as of Oct. 1, up from $1.5 billion one year earlier, according to the Illinois SURS investment committee report.