Isabelle Scemama, CEO of AXA Investment Management – Real Assets, sees a growing role for property shares in portfolios designed for investors who require greater liquidity than is available from direct property investments.
This partly reflects the structural shift in pension plans to defined contribution programmes and away from defined benefit, she said in an interview in the latest quarterly magazine of Europe’s listed real estate association EPRA.
Listed real estate assets accounted for just under 5% - or €3.6 bn - % of AXA IM’s €76 bn assets under management at the end of last year.
The investment manager’s 360 degree approach to real estate investing means the listed sector is a building block in a fund’s portfolio construction, combining some or all of the four quadrants of real estate (public and private equity and debt) according to the investment strategy, Scemama said. AXA IMRA manages an €4 bn hybrid fund designed for retail investors, where half the capital is invested directly in properties and the balance is divided between cash, listed debt and equities.
‘Through this, we aim to manage liquidity and manage the long-term yield with less volatility,’ she explained. ‘We really believe in these products because there’s great demand for them.’
Another product is 60% invested in REITs and 40% in real estate debt to effectively hedge the volatility caused by the listed companies’ leverage. ‘We are able to replicate, for the most part, the underlying performance of the direct real estate market by counter-balancing this volatility and capturing the upside from equities. Of course, we can create alpha through stock-picking,’ she explained.
In this late phase of the investment cycle, AXA IMRA is taking a more disciplined approach to capital-raising, Scemama noted. The investment manager raised €6.6 bn last year, down from €8 bn in 2016.
‘We are being quite cautious about raising more capital, capping each of our strategies according to our ability to deploy it,’ Scemama explained. ‘We are looking to steer our clients toward pooled funds so that they avoid competing for the same assets. It allows them to access the best of what’s available in the market – I don’t want to find ourselves with one asset that would suit ten clients and make them all stand in line to buy it.’
With generalised price gains for prime real estate assets set to slow, AXA IMRA expects total investment returns to moderate from the double-digit levels that investors have enjoyed over the past three years. As a result, the Paris-based investment manager is pivoting to development projects and ‘alternative’ sectors including residential, healthcare properties and logistics warehousing, Scemama said.
‘At this point in the cycle…we are focusing on sectors offering the potential for rental growth, which is the case for the so-called alternative assets and sectors about which we have strong convictions.’
The full interview with Isabelle Scemama appeared in the June edition of EPRA Industry Magazine. Click here for the link.