New Zealand wholesale investors lag the world in exposure to private real estate, according to a new analysis by Fidato Advisory, with less than $2 billion currently invested in the asset class.
The study, commissioned by real estate investment manager Vinta Funds Management, cites MSCI figures showing that of the $13 billion of NZ properties listed in the index provider’s database “just 13% is held by unlisted wholesale funds”.
Ed Schuck, Fidato principal, said while the MSCI data indicates NZ wholesale funds own about $1.7 billion of private real estate assets, the index figure “does not capture all commercial property in NZ”.
“Many investors hold commercial property but do not supply information on their holdings to MSCI,” Schuck said. “But I would think that the $1.7bn figure is a pretty good estimate of the private real estate held by unlisted wholesale funds in NZ.”
Australian wholesale funds own almost half of the A$148 billion of properties included in the MSCI database, the Fidato report says.
“In contrast to the situation overseas, anecdotal evidence suggests that it is common for wholesale investors in New Zealand to have material exposures to public real estate securities, but negligible exposure to private securities,” the study says.
The Fidato report says liquidity concerns and lack of suitable products have likely restrained New Zealand wholesale investors from allocating more to private real estate assets.
Aside from “defined contribution schemes [including KiwiSaver schemes] and some insurers”, the comparative illiquidity of private real estate holdings should not be a problem for NZ wholesale investors, the study says.
“The relatively small number of products is likely to be a shortcoming of the private real estate asset class in New Zealand in the eyes of wholesale investors,” the Fidato report says.
“… the lack of product choice will only be alleviated by fund managers bringing new products to market to meet investor demand,”
Just two open-ended private real estate funds – offered by Fisher Funds and Trust Investments – are currently available to NZ wholesale investors, Fidato says, with a handful of smaller open-ended funds, including Vinta, recently coming to market.
The Australian-headquartered Vinta launched a $121 million direct property wholesale fund last week, seeking about $80 million from new investors with three Wellington commercial properties forming the seed assets.
Vinta lists former BT Funds NZ and AMP executive, Fiona Oliver, as chair.
Only a sprinkling of larger closed-end wholesale direct property funds, including products offered by Willis Bond and Stride, have also hit the NZ market in recent years, the Fidato report says.
In spite of the current limitations in the NZ market, the study says private real estate has the potential to add value to a diversified portfolio on a risk-adjusted basis.
“Private real estate returns in New Zealand generally exhibit low correlation with the returns on other major asset classes,” the report says, while pointing out:
- Contrary to the view of some commentators, private real estate is more correlated with growth assets that income assets;
- There is an opportunity to enhance the diversification of multi-asset portfolios by incorporating private real estate in the growth portion of those portfolios; and
- Allocation to private real estate is initially best achieved by reducing any existing exposure to public real estate (due to its high correlation with the NZX50).