Quest for steady income helps push worldwide assets up 8.7%
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • Walker & Dunlop appoints managing director
      Digital Alpha raises more than $1 billion for infrastructure fund
      John Haggerty
      Sector’s risks need to be weighed, consultant says
      A healthcare worker provides care for a COVID-19 patient in the intensive care unit at the Saint Joseph hospital in Marseille, France, on Nov. 20, 2020.
      Private equity’s health-care role draws spotlight
    • Philip Pearson
      Hymans Robertson chooses head of LGPS investment
      Daniel Celeghin
      Indefi hires New York-based managing partner
      Hub International continues buying spree with IBG acquisition
      Callan brings on 2 executives
    • American flags outside the New York Stock Exchange
      Stock shorts collapse as no hedge fund wants ‘head ripped off’
      Michelle Dunstan
      Move to link exec pay to ESG integration growing
      The J.P. Morgan Chase logo displayed at a branch bank
      J.P. Morgan sells $13 billion of bonds in largest-ever bank deal
      John Bakarat
      Commentary: COVID-19 and real estate debt – where investors should be looking
    • Pentegra joins with EPIC to offer 3(16) fiduciary services
      Joseph Healy
      Smaller DC plans place greater focus on improving financial wellness efforts
      Interest rises in keeping retiree assets in-plan
      Pentegra launches pooled employer plan
    • Pension funds hear from beneficiaries on ESG – report
      Ivanhoe Cambridge sets 2040 net-zero carbon goal
      Church Commissioners set 25% emissions reduction target by 2025
      U.S. likely to join Europe in mandating climate risk disclosure – John Kerry
    • Girls Who Invest
      MetLife plans 3 internships for Girls Who Invest scholars
      Model home
      Resmark sees niche in buying, leasing model homes
      Riscura stories
      Dystopian tales explore altered retirement reality
      Joel Holsinger
      Ares wants to do good – and profit – with fund
    • Karen Karniol-Tambour
      Bridgewater appoints 2 co-CIOs to oversee new sustainable investing group
      Hedge funds post best first-quarter return since 2000
      Jason Kephart
      Managers see good times ahead in 2021
      Jev Mehmet, CEO of Brevan Howard's Coremont unit
      Brevan Howard runs $50 billion unit like BlackRock’s Aladdin
    • Chinese stock risk up in first quarter, U.K. risk down – Qontigo research
      First Eagle starts small-cap equity team with liftout from Royce
      Sacramento County Employees rebalances equity, fixed-income portfolios
    • First Eagle starts small-cap equity team with liftout from Royce
       Kaitlin M. May
      Putnam Investments names head of global institutional management
      Paul Griffiths
      HSBC Asset Management selects next global head of institutional business
      Alex Bernhardt
      BNP Paribas AM picks global head of sustainability research
    • State pension plan funding advances in first quarter – Wilshire
      Sacramento County Employees rebalances equity, fixed-income portfolios
      CAAT pension plan scores 11.1% gain in 2020
      The headquarters of the California Public Employees' Retirement System, Sacramento
      CalPERS board votes to add long-term comp for CIO post
    • Walker & Dunlop appoints managing director
      First Eagle starts small-cap equity team with liftout from Royce
      Philip Pearson
      Hymans Robertson chooses head of LGPS investment
       Kaitlin M. May
      Putnam Investments names head of global institutional management
    • European private equity deal value, volume hit records for first quarter
      Paul Morrissey
      Blackstone Growth picks managing director to lead European investing
      Bills of euro, dollar and pound currencies, among others
      Ardian closes latest buyout fund at $8.8 billion
      Hand typing on stationary iPhone at an office reception desk
      Private equity’s taste for tech spurs $80 billion deal spree
    • BentallGreenOak closes latest European fund at $2.3 billion
      Cohen & Steers adds team for new private real estate business
      Australia’s Centuria makes takeover bid for Primewest
      CalSTRS indutrial property
      Investors hungry for industrial properties
    • Andy Schreiner
      New PEPs targeting firms without retirement plans
      Jackie Walorski
      Contribution catch-up for caregivers gaining favor
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
      Neal and Brady
      Retirement security could be only issue both sides accept
    • A coin representing Bitcoin cryptocurrency in the U.K.
      Cryptocurrency and digital assets
      Corporate pension contributions
      Eddy Awards 2021
      COVID-19: One year in
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • Chicago Policemen on lookout for passive manager
      Iowa Public Employees seeks investment consultant
      New York State Common slates $400 million for renewable energy
      Texas County commits $100 million to another Taconic credit fund
    • Chicago Policemen on lookout for passive manager
      Iowa Public Employees seeks investment consultant
      New York State Common slates $400 million for renewable energy
      Texas County commits $100 million to another Taconic credit fund
    • Emerging Market Debt Manager Services
      Real Assets Consultant
      Passive Investment Management Services
      Active Extended Global Credit Manager Search
    • High-yield spreads narrow, default rates drop
      Private real estate funds continue rebound
      Managed account adoption stalls in 2020
      U.S. bonds have worst quarterly return since 1981
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Marcie Frost
      CalPERS: Urgency underscores all areas of providing retirement security
      BPTW cartoon
      P&I’s Best Places to Work marking a milestone
      CalPERS cartoon
      Urgency underscores CalPERS' search for a CIO
      Multiemployer plans cartoon
      Money — but no fixes — for multiemployer plans
    • Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
      COVID-19 Makes LP Portfolio Management More Important Than Ever
      China: the outlook is bright for longer-term investors
      Finding Differentiation in Securitized Assets
    • John Bakarat
      Commentary: COVID-19 and real estate debt – where investors should be looking
      Jake Remley
      Commentary: Inflation expectations vs. reality in the bond market
      Greg Shea and Steven Kindred
      Commentary: The solution for yield-seeking allocators may be hiding in plain sight
      Jim Park
      Commentary: Asian Americans, Pacific Islanders face ‘bamboo ceiling’ in money management
    • Marcie Frost
      CalPERS: Urgency underscores all areas of providing retirement security
      Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
    • P&I Content Solutions
      Research for Institutional Money Management
      P&I Content Solutions
      Top questions for institutional investors
      Sponsored Content By Newton Investment Management
      Growth and Innovation in Emerging Markets
      P&I Content Solutions
      In Challenging Markets, Systematic Global Macro Strategies Could Hold Opportunity
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • Invesco logo shown on the floor of the New York Stock Exchange
      watch video
      1:28
      Invesco’s bid for performance gains
      watch video
      1:23
      The passive fixed-income glut
      watch video
      1:38
      Is it time for DC plans to embrace private equity?
      watch video
      5:39
      The coronavirus pandemic: One year later
    • New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Investing in infrastructure at the right price
      Time for Action: Shifting Pension Dynamics from a Macro and Regulatory Relief Perspective
      Understanding the PEP Evolution
    • POLL: Cryptocurrency investing
      POLL: The Biden infrastructure plan
      POLL: Retirement income solutions
      POLL: Working after the pandemic
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • High-yield spreads narrow, default rates drop
      By the Numbers for April 2021
      Graphic: The state of DC plans
  • Events
    • Conferences
    • Webinars
    • DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
      Retirement Income Conference
    • New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Investing in infrastructure at the right price
      Time for Action: Shifting Pension Dynamics from a Macro and Regulatory Relief Perspective
      Understanding the PEP Evolution
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. Special Report real estate managers
October 16, 2017 01:00 AM

Quest for steady income helps push worldwide assets up 8.7%

Arleen Jacobius
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Bradley Baker said debt placates investors afraid of a downturn.

    Assets under management of the largest real estate managers continued along a path of steady growth, pushed by investors search for steady income, with worldwide assets up 8.7% to $1.32 trillion for the year ended June 30, compared with 5.5% growth a year earlier.

    There were reversals of fortunes in a few of the categories tracked by Pensions & Investments' annual survey of real estate managers. Worldwide real estate investment trust assets managed by the largest managers dropped by 10.7% to $416.3 billion after last year's growth spurt of 15.4%. Hybrid debt was the only other sector to lose assets in the 12 months ended June 30, although from a lower base, down 13% to $9 billion compared to a 14.5% increase in last year's report.

    Not all the reversals were negative. Worldwide timber assets were up 1.3% to $31.8 billion, compared to a 2.4% drop in the year-earlier period. Worldwide farmland assets grew by 10.2% to $18.7 billion, compared to a 12% drop in worldwide farmland assets a year ago.

    MetLife Investment Management lead the list of managers of worldwide real estate with assets up 4.7% to $105.8 billion.

    "Our growth in AUM reflects an increasing number of customers across the commercial real estate strategies we offer, including our​ real estate debt and real estate equity platforms," said Robert Merck, senior managing director and global head of real estate and agriculture at MetLife Investment Management. "Overall growth in our platform has been driven by new investments, and while we continue to attract new customers and assets, the denominator effect has moderated our overall rate of growth."

    The denominator effect occurs when a decline in a pension fund's total assets causes target allocations to illiquid alternative investments to rise to or above their targets, curtailing their ability to make new commitments.

    Real estate equity assets managed for U.S. tax-exempt clients increased 2.1% to $416.6 billion, continuing the steady climb since 2010. Last year, real estate U.S. tax-exempt assets grew nearly 5%.

    Strong strategies

    Two of the strongest sectors of assets managed for U.S. tax-exempt institutions were debt strategies, albeit from lower bases. Mezzanine climbed 31.4% to $6.2 billion and loans were up 19.7% to $1.7 billion. Mortgage assets also increased by 7.2% to $65.5 billion. Meanwhile, hybrid debt managed for U.S. tax-exempt clients fell by 7.3% to $5.7 billion.

    Last year, mezzanine was up 24.4%, loans were up 12.4%, and mortgage assets were up 4.2%.

    Real estate managers are gaining assets in real estate debt strategies they expect could protect investors' portfolios in a downturn.

    "There is concern about where we are in the (real estate) cycle after seven strong years," said Bradley Baker, managing director and chairman of the real asset research committee in the Pittsburgh office of Wilshire Consulting, the investment consulting and OCIO business of Wilshire Associates. "There's a debate about where the next correction will be."

    These concerns are motivating some investors to commit increasing amounts of capital to real estate debt strategies, he said.

    It's not a wholesale move of their real estate equity allocations into real estate debt, but clients that have exceeded their real estate equity target allocations have been rebalancing into real estate debt strategies, Mr. Baker said.

    Investors still see value in real estate equity even though returns have moderated, he said.

    For the year ended June 30, the National Council of Real Estate Investment Fiduciaries' NCREIF Property index returned 6.97%, down from the 10.64% return for the 12 months ended June 30, 2016. Return from the income component of the index was 4.69% and 2.20% appreciation. This year's NCREIF Property index return was well below the annualized average total return over the past five years of 10.49% and just above the annualized total return for the past decade of 6.42%.

    The relative yield of private real estate — ranging from 4% to 6% — looks attractive when investors compare real estate to the yield of other asset classes, Mr. Baker said.

    The slide in REIT assets is partially due to lower returns. The total return on the FTSE NAREIT All REITs index, which includes equity and mortgage REITs, for the year ended June 30 was 1.38%. The total return on the FTSE NAREIT All Equity REITs index over the survey period was 0.22%, according to data provided by the Washington-based National Association of Real Estate Investment Trusts.

    The previous year, the total return of the FTSE NAREIT All REITs index was 22.68% and the total return of the FTSE NAREIT All Equity REITs index was up 24.04%, NAREIT data shows.

    The top three REIT managers held onto their positions. BlackRock Inc. led the list with total assets up less than 1% to $116 billion in the survey period. Vanguard Group Inc.'s REIT assets were relatively flat as well at $64.4 billion and third place Cohen & Steers Inc. saw assets down 4.9% to $38.3 billion.

    Jon Cheigh, New York-based executive vice president and global portfolio manager of Cohen & Steers, said in an emailed statement that the firm was not immune to market forces challenging the industry during the survey period.

    REIT returns dropped during the period, which impacted REIT assets, Mr. Cheigh said. What's more, there is increased manager competition.

    "Among active managers, we continue to witness significant dispersion in returns. As competition increases throughout the industry, and as institutional investors grow ever more sensitive to the fees they pay for services, we believe those managers that consistently deliver alpha should have the opportunity to gain market share," Mr. Cheigh said.

    Tax-exempt growth slows

    The 50 largest real estate managers of U.S. institutional tax-exempt assets under management, representing 93% of the total, saw growth slow to 5.8% to $502.3 billion, from 10.7% growth shown in last year's survey. U.S. institutional tax-exempt AUM of the top 10 managers grew 5.8% to $307.9 billion, with the top 10 managers accounting for 58.1% of total U.S. institutional tax-exempt assets.

    MetLife Investment Management jumped into first position this year as the largest manager of worldwide real estate assets, switching with PGIM, the asset management arm of Prudential Financial Inc., which fell to second position with worldwide assets gaining 3% to $104.4 billion. Nuveen, formerly TIAA Global Asset Management, held onto its third-place spot with worldwide real estate assets up 5.4% to $99.5 billion. TH Real Estate is Nuveen's real estate investment management affiliate.

    Not included in the rankings again this year is Blackstone Group LP, New York, which tracks its data in a different way from P&I's method. But Blackstone executives did provide some information. As of June 30, Blackstone's worldwide real estate AUM — defined as equity value net of leverage and unused capital commitments — totaled $104 billion, up 1% from last year.

    The top three managers of U.S. tax-exempt assets held onto their positions from last year. Nuveen retained its lead on the list of managers of U.S. tax-exempt assets with an 11.9% increase to $72.5 billion; PGIM was second with assets up 1.5% to $51.2 billion; and J.P. Morgan Asset Management was in third with assets up 2.7% to $46.3 billion.

    In the six months ended June 30, PGIM had the most growth in international assets, said Eric Adler, London-based CEO of PGIM Real Estate.

    "We've been big in Mexico … and Asia continues to grow," Mr. Adler said. "It's big enough to move the needle."

    For instance, international assets managed for PGIM's U.S. tax-exempt clients jumped 44.8% to $1.4 billion during the survey period.

    Meanwhile, certain areas in Asia became less correlated with the rest of Asia. For example, Tokyo and Sydney real estate became more competitive, while properties in Brisbane, Australia, rose in value as the region begins to recover from being hard hit by the global oil glut, he said.

    "Europe and the U.S. were flatter. We were buying as much as we were selling," Mr. Adler said.

    More interest from Asia

    Asian investors are increasingly investing in U.S. real estate, Mr. Adler said.

    In the six months ended June 30, a growing proportion of capital to be invested in U.S. real estate is from non-U.S. investors, he added.

    PGIM again tops the list of real estate firms managing U.S. assets for foreign clients, with assets up 19% to $15.2 billion. Brookfield Asset Management was in the second spot with assets up 29.5% to $11.3 billion, while Bentall Kennedy LP was third with assets up 330% to $8.6 billion. While Bentall Kennedy has pushed to attract foreign investors, a large portion of the increase was due to a difference in reporting.

    Anton Pil, managing partner of J.P. Morgan Asset Management's global alternatives business, said desire for core real estate picked up quite significantly in 2017.

    "Investors recognize that we are late in the U.S. cycle and the (Federal Reserve) is thinking about removing liquidity from the financial system, which has driven clients into safer, cash-flowing investments that they view as more stable," Mr. Pil said. "At this point in the cycle, you don't want to buy land and start from scratch if you don't know what the world will look like in three to four years from now."

    Investors are also still looking for a fixed-income alternative to provide them stable income and some level of inflation protection, especially since the yield of other fixed-income alternatives such as high-yield bonds have fallen, Mr. Pil said. "That trend may accelerate in the next 12 to 18 months," he added.

    Related Articles
    Townsend sale a tale of the times
    Average target real estate allocations surpass 10% for first time — survey
    More investors turn to farmland, debt strategies
    Current investment cycle will be long, with soft landing – report
    Real estate firms getting foot in technology door
    Recommended for You
    Top questions for institutional investors
    Sponsored Content: Top questions for institutional investors
    sponsored
    Events
     
     
    Sponsored
    White Papers
    Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
    COVID-19 Makes LP Portfolio Management More Important Than Ever
    China: the outlook is bright for longer-term investors
    Finding Differentiation in Securitized Assets
    Green and sustainable bonds in emerging markets
    Portfolio Protection: One Size Fits None
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    April 5, 2021 Page One

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center