Investors look to roads and real estate for yield
NEW YORK/LONDON (Reuters) - Investors searching for safety, high yields and steady cash flows are increasing their allocation to global real estate and infrastructure, executives of RREEF, Deutsche Bank AG's (DBKGn.DE) Alternative Asset Management division, said on Thursday.
"When you look at real assets, such as real estate and infrastructure that provide good cash flows, that provide some inflation protection, as part of a broader investment portfolio, all the investors that we're speaking with want to increase their allocations to these asset classes," Pierre Cherki, managing director and Global Head of RREEF, said at the Reuters Global Real Estate and Infrastructure Summit.
Deutsche Bank has branded all of its alternative asset management businesses RREEF. RREEF Alternative Investments has $86.5 billion of assets under management, including $60.1 billion of real estate assets and $11.4 billion of infrastructure assets.
About 25 percent of its real estate assets are invested in publicly traded securities, such as shares of real estate investments trusts (REITs). Almost all the rest is in direct investment in properties around the globe, mostly via equity investments.
About 53 percent of the real estate assets are located in the United States, with 39 percent in Europe and 8 percent in Asia. RREEF hopes to double its slice in Asia within five years while growing the overall asset base, Cherki said. It also hopes to move into Latin America but not before it builds a business there.
"One day we'll be there. But there are huge growth opportunities in the sectors in which we already operate," Cherki said in New York.
Most of its real estate investments are in stable, income producing core properties. RREEF also manages investments in properties that can be improved, called "value-add" and riskier properties that need more work and time but offer greater returns, called "opportunistic."
Core properties in key European and U.S. cities, such as London, Paris, New York, and Washington, D.C., have seen their prices explode. Global investors seeking stability and the higher yields that real estate offers relative to government bonds have pushed up prices.
"The interest is very much on the largest investment markets," he said of New York, Boston, San Francisco, Los Angeles, London, Paris, Munich, Frankfurt, and Hamburg.
"There is certainly a lot of capital chasing the same narrow type of opportunities," he said. RREEF's advantage is its large presence -- 600 people in 22 offices -- and its deep knowledge of individual markets. It also has relationships that allow it to often privately negotiate a sale rather than bid for properties up for sale, which it also does.
"We have a lot of new clients that are showing interest to core investment in established markets such as the U.S. and Western Europe," Cherki said.
"We are in discussions with large sovereign wealth funds and pension funds in Asia and the Middle East that currently do not have exposure to core real estate in those establishment markets, and any core investor needs to have a presence in the U.S. market which is still by far the largest core investment market," Cherki said.
For example a client, Employees Provident Fund -- a large Malaysian pension fund -- hired RREEF last year to invest about one billion euros by 2013. In April, Korean life insurer Samsung Life awarded RREEF 500 billion Korean won to invest in real estate in global gateway cities starting with New York and London and expanding into other well-established markets.
RREEF's infrastructure arm, which includes investments in global assets such as ports and roads, is looking at about 26 billion euros of equity opportunities, John McCarthy, global head of RREEF Infrastructure, said in London.
Those include solar-thermal power plants of Spanish builder Groupo ACS (ACS.MC) and Italian oil group Eni SpA's (ENI.MI) stake in German gas pipeline TENP, McCarthy said.
RREEF reached its first fundraising close for its second European infrastructure fund in April 2011, raising 620 million euros, and is looking to generate low to mid-teen total returns and high cash yields of 6 percent to 8 percent.
McCarthy said he saw infrastructure investment opportunities in Spain, where the deteriorating economic situation prompted the government to open its infrastructure to private investors.
"The last four investments we made and the next investment we will make in the next few weeks have all been in Spain," McCarthy said. "But government privatization generally comes with more complication, slower processes, and we would look at it cautiously as far as Madrid and Barcelona airports are concerned."
McCarthy said he also saw opportunities in Germany, where the decommissioning of nuclear facilities is expected to lead to 150 billion euros of investment in energy transport infrastructure over the next 10 years, as much as in Britain.
($1=1,080.10 Korean won)
(1 euro=1,537.20 Korean won)
(Reporting by Ilaina Jonas in New York and Gregory Roumeliotis in London; Editing by Phil Berlowitz)