Switching gears: fundraising post-pandemic
A recurring discussion amongst my peers and from past reflections over the course of my career is that capital raising has drastically changed over the years. Due to the private nature and limited visibility of funds, it’s not as clear cut as it may seem. However, I can give a quick snapshot of the current situation from my recent conversations and experience:
- Investor confidence rebounds: The majority of recent investor surveys, alongside anecdotal feedback from my peers, indicate that investors are beginning to put their capital to work again. In the latest Lazard Investor Sentiment snapshot, c.80% of investors responded to say they are “business as usual”. The research found that the most active investors are sovereign wealth funds and fund of funds, with the least active being wealth managers – this chimes with what I have heard at conferences as well. Geographically, US and Asian investors have been more active than investors from other regions.
- On-sites are back on! Recently, it appears that few investors are willing to enter an eight or nine year relationship without having met the manager in person. Saying that, the mega cap managers have been benefiting from inflows throughout the pandemic, as these are arguably easier to due diligence from afar and using references. In the last few months, since travel restrictions have eased, we’ve had a lot more investors fly in and request site tours – and expect that this will only continue.
- Investors are returning to niche managers: I was at a conference recently and one investor said to me, “if you want beta, invest in a global manager, if you want alpha, invest in a boutique”. While it may not be quite this black-and-white, recent research by the University of Cambridge demonstrates that country-specific managers outperform pan-European managers by c.200 basis points.
- US investors are achieving excellent returns in private markets domestically. The benefits of investing in home markets have been a common theme in investor discussions, particularly those based in the US. Whilst I appreciate the logic of investing in one’s home markets – with no FX risks and more local expertise – there is still a role for global diversification. In fact, this can only have increased in importance given today’s geopolitical conflicts and the risk of black swan events.
- New regulations impacting Australian superannuation funds. The introduction of the new regulation in Australia: “Your Future, Your Super” has led to a lot of conversation recently. The regulation pits all unlisted property funds against a domestic benchmark. Given the pushback on this from both home consultants and those in the industry, the regulation may change, but this is the current situation. However, larger Australian superannuation funds are still investing directly in the UK.
- Offices are back in vogue. While the pandemic has changed the way we think about our physical working environment, interest and appetite from investors in office assets has remained buoyant. London offices were the favourite city/sector combination in INREV’s Investor Intentions survey this January. While we all know how popular industrial and residential remain, it was also noteworthy to hear of investor interest in selected retail again.
- Consultants are looking at country-specific managers. I have been very pleased to hear that consultants are looking more keenly at the UK again given the interest from their underlying client base. There may have been some hesitance over the last few years given the headwinds from Brexit, and consultants are cognizant of the opportunity cost for their underlying clients that can invest globally. At the same time, it is difficult to ignore one of the most liquid and mature real estate markets in the world and the growing murmurings that UK real assets will likely outperform their continental peers over the next 5 years.
Lisa Barry-Lyons, Senior Business Development Manager