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.
Rest looks to new Fidelity fund for impact
The $78 billion Rest is the cornerstone investor in Fidelity’s new Real Estate Logistics Climate Impact Fund (or LOGICS), which will acquire logistics properties across “core Western European” markets and redevelop them into high-quality assets that can be operated at net-zero carbon.
The commitment brings Rest closer to its goal of having one per cent of FUM allocated to impact opportunities by 2026, which it has previously looked for in listed and private equities and agricultural assets.
“We believe its focus on climate impact offers a fantastic opportunity to benefit Rest’s approximately 2 million members, including the more than a million who are younger than 30 and will retire into a post-2050 net-zero world,” said Rest CIO Andrew Lill.
“With logistics properties trading at attractive rates and demand for energy efficient facilities growing, we believe the LOGICs fund will drive rental yields and property values that should translate into strong financial returns while helping to speed up the path to a carbon neutral economy.”
Rest committed around €80 million (circa A$130 million) to the fund at first close, with the intention of committing another €120 million (circa A$197 million) over subsequent closes. The fund’s interest stems from businesses making decarbonisation a priority in the face of new regulation and government expectations, as well as onshoring of supply chains and the continued growth of e-commerce retail.
“Around 40 per cent of total global carbon emissions come from real estate,” Lill said. “With eighty-five per cent of Europe’s buildings over twenty years old, improving them provides a valuable solution to growing demand from businesses looking to move quickly towards net zero operations.
“Business demand for high quality logistics facilities is expected to grow as we continue to see the property sector respond to global decarbonisation priorities and other worldwide economic and geopolitical factors.”
Rest’s impact investments now include allocations to Palisade’s Impact Fund, specialist private equity firm ARCHIMED, the agriculture centred Cibus II Fund and an international listed equities mandate with Ninety One.
“Through these investments, we aim to help our members grow their retirement savings with strong, long-term investment returns and also generate measurable positive environmental impacts,” Rest head of listed assets Kiran Singh said following the Ninety One investment.
“The transition to a lower-carbon economy is presenting us with new investment opportunities to accelerate returns for our members’ retirements. We believe it’s very important that our members have exposure to companies with growth leveraged to decarbonisation solutions.”
