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Do fund managers need to do anything differently or bring different to buy. There has been a shy in activity recently undertaken
skills to the table in today’s new-look economic climate? by SWFs, but I guess that SWF managers are not seeing that
DC: Expecting fund managers to realise positive alpha in today’s markets have bottomed out yet. I would say their activity will
markets is still possible, provided that one is mindful of the new increase in 2010.
rules of the game. The financial crisis has led to a more cautious
investment approach: the reluctance of debt providers to provide EM: A lot of SWFs are obviously in the process of taking stock of
loans and their resulting reduction of the debt/equity ratios implies what has hit them, and I don’t think that we will have any clarity
the need for higher equity participation and hence lower expected as to what the outcome will be in the near future. SWFs are not
property yields. Furthermore, the crisis has revealed the importance particularly transparent and I know that at least a couple of them are
of having in-house risk management and due diligence functions. rethinking their global strategy. I believe that there will be a lot of soul
It also led us to rethink the scale of construction projects and raised searching in the next six months.
the need for envisioning smaller-scale ones.
Is the REIT model ‘dead in the water’ for now?
Are cross-border investment flows being replaced by alternatives EM: On the contrary, people are still willing to invest because asset
closer to home? values have come down a lot and so a lot of these properties are
EM: Generally speaking yes, but that applies to all asset classes. I yielding very nicely. For example, the development we recently signed
tend to think that this is applied more to real estate than to equities in London was yielding four to 4.5 percent just one year ago and today
or other financial instruments. It’s a very good description of the it is double that. So if you can pull a REIT together and snap up some
mood of investors today who are saying ‘I will only invest, when I of these opportunities then I am sure there will be lots of interested
have the cash, in those assets that I can see and touch, in markets buyers out there, especially if you have good tenants, a good location,
that I understand’. This is definitely the basis as we go forward, and good covenants and minimal maintenance/upkeep costs. The world
the global crisis precipitated aversion. This isn’t necessarily ‘de- economy is still generating cash and wealth, so if we can identify a few
globalising’ investment but the people that we work with genuinely properties of such caliber which can yield high single digits or early
don’t want to invest in markets that they don’t understand or are double digits, we would seriously look at pulling a REIT together of
unable to assess for themselves. between US$200 to US$250 million. We could then do a cocktail of
cash yielding properties in places like Qatar, Saudi and London that
DC: GCC investors have clearly shifted their focus, since the would yield investors a figure in the small double digits.
beginning of the crisis, away from European/US stocks towards
opportunities they understand closer to home; the same goes for DC: REITs are different from other real estate investments schemes
foreign investment by international investors into the region. We are in many respects. They own and manage income-producing
just starting to see some renewed interest by institutional investors commercial assets, and are thus more sensitive to two key risk
in emerging markets due to their higher growth potential. We expect factors - rising interest rates and declining rental income resulting in
these investments to go into sectors of sound fundamentals, lower in-going yields. Accordingly, the pricing and structure of the
among which real estate will attract a significant share. REITs, coupled with current investor cautiousness make the REIT
model unattractive for the time being.
Do you anticipate continued interest from regional SWFs in
distressed asset purchases or is there a new element of caution as Has the global downturn put interest in SRI funds on the
they deal with the situation in their own markets? back burner?
DC: We do expect that SWFs will continue to benefit from DC: I hope not. That would be unfortunate, given that the traditional
opportunities presented globally. Today opportunities exist in paradigm wherein SRI investment strategies underperforming
landmark assets across the world. A portfolio manager must versus traditional ones is highly contentious. Some studies even
look everywhere for the sake of geographical diversification. The prove that SRI strategies perform as well – and sometimes even
lesson we learned from the recent crisis is that although markets better- than traditional strategies. Whatever the reality, it is
can correct everywhere at the same time, a reversal of the trend important to remember that SRI investments may not perform
may be faster in one place than the other. Distressed real estate like other indices or funds, which mustn’t – even in times of crisis
in developed markets, and, more specifically, office buildings are - prevent investors from integrating their social and environmental
currently most appealing. SWFs usually watch cyclical downturns beliefs with their return objectives.
t
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