BENCHMARKING GLOBAL REAL ESTATE & INFRASTRUCTURE

Transcription

1 BENCHMARKING GLOBAL REAL ESTATE & INFRASTRUCTURE SPS Conference, London, 8 th October 2015 Mark Clacy-Jones, Head of Applied Research, Real Estate, MSCI 2015 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

2 MSCI REAL ESTATE PRODUCTS COVER THE SPECTRUM OF REAL ESTATE INVESTING (& NOW INFRASTRUCTURE TOO)

3 ASSET LEVEL ANALYSIS FUND LEVEL ANALYSIS THE PERFORMANCE TREE The building block for our performance bench Net Fund Return vs. Benchmark Gross Fund Return vs. Benchmark Contribution from Fund Structure Other Portfolio Effects Fund Costs Cash Other Investments Leverage Fund Structure Direct Real Estate Fund Direct Real Estate Return vs. Benchmark Direct Real Estate Components of Return Attribution of Relative Return Income Return Capital Return Allocation Stock Selection Active Status Contributions to Relative Returns Asset Strategy Geography Property Type 3

4 BENCHMARKING GLOBAL REAL ESTATE & INFRASTRUCTURE REAL ASSETS FAVORED ASSET CLASSES

5 A STRUCTURAL SHIFT TO ALTERNATIVE ASSET CLASSES... ASSET ALLOCATIONS ACROSS GLOBAL MARKETS BASED ON PENSIONS IN AUSTRALIA, CANADA, JAPAN, NETHERLANDS, SWITZERLAND, UK, & US 5% 40% 25% 31% CASH ALTERNATIVES BONDS EQUITIES 49% 42% Source: Towers Watson (Watson Wyatt), Global Pension Assets Study, various years Note: Alternatives include real estate, private equity, hedge funds, et al. 5

6 PARTICULARLY FOR REAL ASSETS IN AUSTRALIA, NORTH AMERICA, BENELUX, & THE UK ALTERNATIVE ALLOCATIONS, GLOBALLY AND ACROSS REGIONS GLOBAL % 25 REGIONAL 24% 35% 20 Real Estate Infrastructure 15 21% 15% 5% Hedge Funds 10 Private Equity Other 5 0 Note: Based on 138 asset owners in Survey Universe. Calculated on % of real estate assets in each category, not number of asset owners. Source: MSCI 6

7 Equities Bonds RE listed RE unlisted (asset) RE unlisted (fund) INFRA listed INFRA unlisted (asset) Equities Bonds RE listed RE unlisted (asset) RE unlisted (fund) INFRA listed INFRA unlisted (asset) Equities Bonds RE listed RE unlisted (asset) RE unlisted (fund) INFRA listed INFRA unlisted (asset) n.a. n.a. n.a REAL ASSETS HAVE GENERATED ATTRACTIVE PERFORMANCE RELATIVE TO EQUITIES AND BONDS % pa COMPARATIVE GLOBAL PERFORMANCE ACROSS ASSET CLASSES ANNUALIZED RESULTS AT 1, 5, & 10 YEARS FOR THE PERIOD ENDING 31 DECEMBER YEARS 10 YEARS Sources: MSCI World Equities Index, Local (EQUITIES); J.P. Morgan, GBI Global, Local (BONDS); MSCI World Real Estate index, Local (LISTED PROPERTY); IPD Global Property Index (UNLISTED PROPERTY - ASSET LEVEL); IPD Global Property Fund Index (UNLISTED PROPERTY - FUND LEVEL); MSCI World Infrastructure Index, Local (LISTED INFRA); MSCI Global Infrastructure Asset Index (UNLISTED INFRA). 7

8 BUT SIGNIFICANT RISKS REMAIN, AS WE KNOW FROM THE HISTORY OF REAL ESTATE INVESTING 1970s 1980s Aggressive pricing of domestic market and strong capital inflows led to surge of activity in US and continental Europe, followed by failures 1990s Deregulation of domestic market enabling foreign investment led to a wave of foreign activity at the top of the real estate investment cycle. Significant value declines followed in the early 1990s North American investors driven by strength of domestic market engaged in development at home and abroad at top of the cycle leading to bankruptcies 2000s Overleverage and aggressive pricing followed by massive credit-crisis leading to questions over role of real estate and tightening regulatory regimes? 2010s Source: MSCI

9 REAL ESTATE AND INFRASTRUCTURE REMAIN OPAQUE ASSET CLASSES OBJECTIVES AND EXECUTION OPTIONS CAN CREATE A DISJOINTED INVESTMENT PROCESS Board of Trustees/CIO Investment Dept Managers ALLOCATION STRATEGY IMPLEMENTATION THEORY $ REALITY $ Limited clarity on RE & Infrastructure risks misaligned policy benchmarks Cannot see impact of asset-specific factors Source: MSCI 9

10 LOW YIELD ENVIRONMENT FUELS GLOBAL REAL ASSETS wider SPREADS WITH LIBOR YIELD SPREAD vs INCOME RETURN AT A GLOBAL LEVEL Global position, 2014 Global position, previous years Global avg. spread over LIBOR ---- Global avg. income return narrower low INCOME RETURN high Note: Spreads based on difference between income return and average annual USD LIBOR, 12-month maturity. Sources: MSCI; ICE Benchmark Administration (IBA) 10

11 INTO YEAR SIX OF STRONG GLOBAL PERFORMANCE 11

12 CONTINUED STRONG PERFORMANCE ACROSS ALL REGIONS % pa 40 TOTAL FUND RETURNS TO JUNE 2015 ACROSS REGIONS TOTAL ROLLING ANNUAL RETURNS IN LOCAL CURRENCY GPFI GLOBAL PROPERTY FUND INDEX (GPFI) REGIONAL MARKETS Asia Pacific Pan Europe UK North America Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Source: MSCI

13 BENCHMARKING GLOBAL REAL ESTATE & INFRASTRUCTURE BENCHMARKING IN PRACTICE PRINCIPLES, ISSUES, OPTIONS

14 BENCHMARKS MATTER Source: Towers Watson, Equity Investing: Insights into a better portfolio, January 2014, p

15 BENCHMARKING STRENGTHENS RISK MANAGEMENT THROUGH THE INVESTMENT PROCESS Board of Trustees/CIO Investment Dept Managers THEORY $ ALLOCATION STRATEGY IMPLEMENTATION Benchmarking is much more than just a way in which investors can monitor manager performance versus a yardstick. A successful fund manager must embrace benchmarking and the associated attribution analysis as an integral risk management tool, allowing them to understand and improve performance at the asset, portfolio and fund level. SIMON MALLINSON quoted in IREI, February 2012 Sources: MSCI (diagram); IREI (quoted material) 15

16 THE BENEFITS OF BENCHMARKING ACROSS A RANGE OF DIMENSIONS Source: MSCI 16

17 WHAT MAKES A GOOD BENCHMARK? REQUIREMENTS COMPLETE & APPROPRIATE CLEAR & UNAMBIGUOUS MEASURABLE INVESTIBLE OBJECTIVE & ACCOUNTABLE Source: MSCI, as adapted from CFA & Towers Watson PRINCIPLES Broad and complete coverage of the stocks or assets available for investment Clear index construction rules and details of individual stocks within the index Scope for relatively frequent measurement, and consistency of measures across markets Stocks within in the index should be investible so there should be scope to simply invest in the benchmark Benchmarks should be independently created, but owned by the manager 17

18 COMMON CHALLENGES FOR THE CREATION OF ROBUST BENCHMARKS GENERAL MAINTAINING RELEVANCE. Given dynamic nature of investment universe and objectives, benchmarks should be regularly reviewed and revised GLOBAL INCONSISTENCIES. Benchmarks should be based on consistent methodologies across global markets, not cobbled together REGULATORY COMPLIANCE. Increasing pressure from investors and regulators to comply with benchmark regulations such as IOSCO PRIVATE ASSET CLASSES COMPLETENESS. Subjective views on the scope of the investment universe MEASURABILITY. Appraisal, rather than price-based, performance measurement, and incomplete market coverage INVESTABILITY. Generally illiquid assets so not possible to replicate in a passive way, reducing value of tracking-error insights Source: MSCI 18

19 DESPITE THE CHALLENGES, THERE IS A RANGE OF INCREASINGLY MEANINGFUL GLOBAL BENCHMARK OPTIONS TYPE INFRASTRUCTURE REAL ESTATE ASSET LEVEL MSCI Global Infrastructure Asset Index NCREIF Property Index (U.S.) IPD (Global) FUND LEVEL PUBLIC MARKET ABSOLUTE RETURN Private Equity Intelligence (Preqin) MSCI Infrastructure Fund Index (Australia) Dow Jones Brookfield Infrastructure Indices FTSE Global Core Infrastructure 50/50 Index Macquarie Global Infrastructure Index MSCI World Core Infrastructure Index S&P Global Infrastructure Index X% (typically 10-12%) Inflation +5% Long nominal yield + 4.5% Inflation-linked yield + 4% Cost of Capital + Adjustments for Risk INREV (Europe) or ANREV (Asia) IPD Global Fund Index NCREIF Fund Index (NFI-ODCE) (U.S.) Private Equity Intelligence (Preqin) FTSE EPRA/NAREIT Global Real Estate Index GPR Global Index MSCI Global Listed Real Estate Index UBS Global Investors X% (typically 8-10%) Inflation +5% Bonds + x% GDP + x% Cost of Capital + Adjustments for Risk Source: MSCI, as adapted from CFA, Towers Watson, & Maple-Brown Abbot 19

20 UK Nordic Canada Benelux Other DE, AT, CH USA Asia Australia PRIVATE REAL ESTATE BENCHMARKS TEND TO BE DIRECT, FUND OR BLENDED, WITH WIDE REGIONAL VARIATIONS USE OF BENCHMARKS FOR ASSET OWNER REAL ESTATE EXPOSURE GLOBAL REGIONAL 6% 22% 21% 13% 38% Direct benchmark Fund benchmark Blended benchmark Absolute return No benchmark 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Note: Based on % of asset owners in each category, not value of real estate, and for the 110 AO s for which benchmark information is available Source: MSCI 20

21 WITH INCREASING MOVES TO ADOPT GLOBAL BENCHMARKS a global quarterly indirect index to help investors to better understand the performance over the short-medium term in a cyclical market environment. In addition, it increases transparency and accountability and will help evaluate performance on a risk adjusted basis. Source: MSCI, Research Insight: Global Quarterly Property Fund Index Q2 2014; CBRE GIP. 21

22 PRIVATE INFRASTRUCTURE BENCHMARKS ARE OVERWHELMINGLY ABSOLUTE INFRASTRUCTURE BENCHMARKS USED BY GLOBAL INVESTORS & MANAGERS Absolute return target 90% Public market 40% Peer group index Internal funding benchmark 10% 10% None / other 20% Source: Towers Watson 2012, based on 10 investors and managers ABSOLUTE RETURN TARGETS INCLUDE: x% CPI + x% CPI + x% + Credit spread CPI + GDP 22

23 2009-Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q4 MSCI GLOBAL INFRASTRUCTURE INDEX INCREASES THE POTENTIAL FOR RELATIVE BENCHMARKS MSCI GLOBAL QUARTERLY INFRASTRUCTURE ASSET INDEX TOTAL RETURN INDEX WITH TRANSPORT & POWER STREAMS SHOWN FOR COMPARISON % pa Total return (All-Infra) Total return (Transport stream) 25 Total return (Power stream) Source: MSCI Global Infrastructure Asset Index (UNLISTED INFRA) SELECTIVE INDEX CONTRIBUTORS Alberta Investment Management Corp (AIMCo) AMP Capital (AMP) AustralianSuper Deutsche Asset & Wealth Management (DAWM) Hastings Funds Management (HFM) Infrastructure Capital Group (ICG) JP Morgan Palisade Investment Partners Queensland Investment Corp (QIC) Whitehelm Capital 23

24 UNDERLYING INFRASTRUCTURE CAN HAVE A SIGNIFICANT IMPACT ON INDEX BEHAVIOUR

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