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.
Good time to sell property in gateway cities
(Pictured: Paul Guest)
It’s not just in the residential markets of Sydney and Melbourne that it’s a good time to sell. Core commercial property holdings are fully priced in the region and global property manager LaSalle Investment Management says it has been actively divesting of its real estate in “gateway” cities.
As part of its “Investment Strategy Annual” series of briefings last week, the US-based firm said, though, that investors were “broadly underweight” Asia. “The prevalence of equity-rich Asian investors with a preference for core real estate will continue to push non-Asian investors to look up the risk curve in order to expand in the region,” Paul Guest, LaSalle’s head of research and strategy for APAC, said. “The long-term trends driving the appeal of bricks and mortar will continue and will take a long time to unwind.”
Asian real estate would continue to grow the fastest out of the major economic regions, notwithstanding the slowdown in Asian economic growth. LaSalle predicts an annual growth rate of 5.4 per cent between now and 2016.
“Fundamentals are gradually strengthening across developed Asia and markets like Singapore, Seoul and Hong Kong will continue to benefit from China’s growth,” Guest said.
He said that LaSalle was focusing on “net operating income” growth, with the three main themes being “demographics, technology and urbanization”. The ageing populations, particularly in Japan and China, continued migration to the cities, which pushes up productivity, and changes due to different shopping and lifestyle behaviours due to technological advances, will drive long-term property investment patterns.
Guest said that for investors with a 10-20-year view, it was a good time to look at China and Japan. There was also some short-term opportunistic possibilities there, but the middle ground was “challenging”. He said it was difficult to see how the reform processes in China and Japan would play out in the medium term.
The three best options in the region were logistics, such as warehousing, retail in Japan and Australia and grade B buildings for refurbishment and upgrade for sale into an “abundant demand” for A-grade and A-minus core properties.
