Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Super funds back Nuveen’s US real estate play
Nuveen has won $190 million from super funds including Cbus, Hostplus and TWUSuper for its US Cities Workplace Strategy, which was started in early 2021 with an initial investment from its parent company TIAA and invests in “alternative workplace assets” across medical office, life science and technology R&D.
“The strategy was positioned away from traditional, big box, billion dollar office buildings in large metropolitan areas and looking to capture some of those thematics relating to an aging population and the way people work,” says Andrew Kleinig (pictured), Nuveen managing director and head of Australia. “It was going a little deeper.”
“(These assets) haven’t really been available for access in the domestic market at scale; there was peripheral interest and then with Covid and more of that change to different kinds of working environment and the healthcare thematic, it was trying to access some of those themes with the understanding that there wasn’t the depth of opportunities in the Australian marketplace.”
Other investors in the strategy include US pension funds, as well as small allocations from the Nordics and Japan. Hostplus and TWUSuper were advised by JANA, with the asset consultant “noting the diversification benefits of investing in sectors not readily available in the Australian market”. Kleinig and Nuveen anticipate that the allocations might grow over time.
“It’s a sub-sector within the real estate space that super funds haven’t had a material exposure to, so it’s a bit of measured step in with knowledge transfer and then the possibility of growing allocations over time,” Kleinig says.
“Speaking from how I’ve seen the market, the desire we’ve found from the super funds has been to, if it’s possible and it’s a compelling investment opportunity at scale, then domestic presents an opportunity for them to allocate to a new asset class or sub-sector first. It was really that the US has such a developed market in these sub-sectors, we’d even say beyond the UK where there’s the Oxford-Cambridge-London ‘Golden Triangle’ for life sciences.”
