CASE STUDY

Real Estate - Nordics

German public sector pension scheme | 2016

Engagement at a glance

A German pension fund with considerable expertise in real estate lacked expertise in a specific niche market (Nordics) and wanted to unearth strong real estate managers covering that region. The €50m planned investment was doubled by the end of the process. Target return: 8-12%, including cash yield.

CLIENT-SPECIFIC CONCERNS

Although the investor was experienced in real estate, they had only invested in the Nordics through pan-European investment strategies. They had identified that existing investments left them underweight the Nordic region and were seeking a strong regionally-focused manager. In addition, the team had significantly more expertise in ‘Core’ real estate than ‘Value-add’ strategies but were seeking to develop a better understanding of the latter.

  • The client was pleased with the range and quality of managers unearthed during the search, a number of whom were ‘under the radar’ of international investors.

    Peter Hobbs, Managing Director

Outcome

  • Casting the net wide was critical, given the need to identify an appropriately broad selection of regionally-focused managers. A total of 53 firms were identified, many of whom remained pre-institutional and focused on specific Nordic countries rather than the entire Nordic region. Out of this initial group, a total of 20 managers were analysed at long-list stage.

  • The initial set of managers represented a wide risk-return spectrum. There was considerable investigation of each manager’s specific approach to value creation through the real estate investment process. With transparent analysis the investor became comfortable with the nuances of riskier (and higher return) strategies, and therefore opted to select a number of ‘Value-Add’ managers for the second stage of analysis.

  • Given the focus on regionally-specific and boutique managers, great emphasis was placed on the organisational structure and stability, and the team culture and dynamic of the shortlisted platforms.

  • The investor’s confidence in the two preferred managers led the investor to double their initially planned allocation and invest €50m with two different managers. Although both were ‘boutique’ operations, they differed significantly in terms of operations and organisational structure.

Our specialist says

  • It was very satisfying to work with such a sophisticated investor, helping them find boutique managers that shared their professionalism and philosophy towards value creation in real estate. This was particularly the case as the investor was learning not only about a new geography and set of managers, but also a new style of investing. Their detailed insights into the ways risks were managed and value is created gave them confidence to invest in managers whose return targets were significantly higher than they had originally anticipated.

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