Hedge Funds Look To Real Estate To Boost Returns

by Carla Johnson, Investors Offshore.com

30 September 2005

An investment symposium in Monaco has heard how hedge funds are increasingly training their sights on the real estate sector in an attempt to boost their returns to investors, which are expected to fall to 5% this year, down from 15% in 2003.

"The number of real estate investment markets and products has expanded exponentially over the last few years, as has the availability of debt finance," Dominic Field, director at CSFB Real Estate Private Fund Group, told the Management Network's High-Performance Investing Symposium in the Principality earlier this week.

"Real estate is here to stay. It is not a flash in the pan like in the early 1990s," he added.

According to Mr Field, commercial property investment returns in the UK have outpaced both equities and fixed income over the last three, five and ten years.

Hedge funds have traditionally invested in shorter-term and more liquid assets to achieve their returns rather than longer-term assets such as property. However, with the real estate sector continuing in the most part to deliver healthy returns, hedge funds have come calling in a bid to boost returns, which fell to 9.5 percent in 2004, compared with more than 15 percent in the previous year. In 2005 analysts expect to see returns averaging between 5 percent and 7 percent.

"There has been a re-rating of property due to the surplus of savings over investment and the undervaluation of property in most markets in the 1990s," observed Gerry Blundell, director of European strategy and research at LaSalle Investment Management.

Although real estate yields have slipped in recent years due to the volume of money flowing into the sector, Mr. Blundell noted that there were still a number of markets offering attractive rates of return, such as logistics property in France, which he said can be obtained at a yield of 7.5 percent, compared with a 1.5 percent yield for French government bonds.

Mr. Blundell also stated that the German market, the only western country to have seen a fall in house prices over the last ten years, also offered good upside potential for investors.

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