1 – Treading carefully in 2019
Recent years have been kind to investors in performance terms, and there are positive themes on the horizon in 2019, with growth opportunities being driven by mega-trends like urbanization and population growth. Here comes the ‘but.’ A sense of caution is emerging as investors keep an eye on economic and political headwinds. Ambitions seem muted: 17 percent believe real estate benchmarks will exceed expectations, lower than for other alternative asset classes. And a greater number of investors intend to decrease their allocations to real estate compared with the other asset classes.
2 – Red flags
Investors’ antennae are particularly acute to potential economic headwinds. The survey indicates that extreme market valuations are top of mind for 66 percent of respondents, while rising interest rates dominate the thoughts of 56 percent, followed by an escalation of the US-China trade war. Although less evident from the survey findings, there are also political niggles that could cause twitchiness in the investor community in the months ahead, including a worrying rise in populism, as well as the UK’s impending departure from the EU.
3 – Faith in trusted partners
Mindful of this year’s potential disruptions – which could take the wind out of the sails of real estate market performance – investors are weighing up if now is the best time to forge new manager relationships. Our survey reveals investors in real estate remain loyal to their current managers: the ones they trust and have worked with over the long term; 56 percent of respondents will not consider investing in first-time funds, suggesting established managers are more likely to attract available capital. This is a tricky time for new market entrants and managers seeking to grow their investor base.
4 – Focus on Asia
Investors have one region on the brain as they consider which emerging markets offer the best potential for growth: Asia-Pacific. A whopping 84 percent of respondents declared it the emerging market in which they are most likely to consider investing in 2019, with Central and Eastern Europe a distant second for 39 percent. Demographic fundamentals are underpinning the region’s attractiveness, with rising population and urbanization fueling growth and investment opportunity. Transparency is also improving in core markets like India, making investing an altogether less risky venture than in years past.
5 – Money mindfulness
Investors’ primary goal is to capitalize assets that will make them good returns. Their second is to minimize costs that could eat into profits. So it is unsurprising to see that the issues of fees and fee transparency are very much on investors’ radars: 64 percent of respondents either strongly agree or agree that the fees currently charged by their managers are difficult to justify and 65.5 percent are seeking greater fee transparency and disclosure from their managers in 2019. And the fund term causing most disagreement with managers during diligence? Management fees.
6 – Room for improvement
Some survey findings may surprise, and no more so than in the critical area of investor due diligence. ESG, sustainability, equal pay and gender diversity have become major talking points in recent years. Yet the survey shows they are, in relative terms, low on the list of investor priorities. Nearly 57 percent of respondents report that the gender pay gap at the GP level forms no part of their diligence efforts, and 41 percent consider ESG to be a minor consideration. And despite more data breaches, just 3.1 percent see cybersecurity as a factor that could impact performance in 2019.