Generating alpha through real assets
In 1986, Cohen & Steers was established as one of the first investment managers dedicated to listed real estate. And while the firm has expanded its strategies to include additional core real assets – such as listed infrastructure, natural resource equities and commodities – as well as preferred securities, the firm’s focus on real estate has never wavered. Its leadership in the space and long-term consistent risk aware approach continues to be recognised across the industry, not least by Asia Asset Management (AAM) who again this year recognised the firm as Best Performing Global REITs (3 Years and 5 Years) in its Best of the Best Awards 2023.
Since going public in 2004, Cohen & Steers has been among the top performing stocks among US asset managers and has outpaced all other asset managers since the bottom of the global financial crisis in 2009, achieving above-average earnings multiple at a time when many other asset managers are experiencing steady organic decay.
“We continue to deploy resources and invest in our highly specialised capabilities that have been specifically designed for this space. We believe that remaining focused on listed real estate and listed infrastructure has allowed us to be successful in our pursuit of generating alpha over full market cycles and in becoming a market leader,” says Jon Cheigh, chief investment officer and head of global real estate at the firm. “Simply put, we have the depth, breadth, expertise and scale to continually innovate new strategies and solutions for our clients,” he adds.
As of March 31, 2023, Cohen & Steers has established a significant global market presence, with US$79.9 billion in assets under management in the major listed real asset categories, including global real estate securities, global listed infrastructure, global natural resource equities and commodities. In addition to standalone strategies the firm also offers multi-strategy real assets portfolios that combine asset classes to meet a variety of investment objectives, through a side selection of vehicles suited to local markets, enabling investors around the world to access the potential benefits of an allocation to real assets.
Asia Pacific
Within the APAC region, the firm has built a diverse client base and achieved market penetration in markets including Japan, Taiwan, South Korea, Singapore, Malaysia, New Zealand and Australia, and today manages around $12 billion in these markets across numerous real asset portfolios.
Cheigh acknowledges that the majority of Asian investors have become more aware of listed real estate through Real Estate Investment Trust (REIT) legislation, which has been introduced by 19 jurisdictions in Asia, since 1999, resulting in significant increases in REIT issuance in local markets.
“Investors are now recognising how REITs and listed infrastructure can be part of their portfolios and how they can complement private investments in the current environment,” notes Cheigh, adding that this is particularly true of listed infrastructure as private funds struggle to deploy capital in the space and turn to public investment opportunities.
Investors, he says, are also realising the value in listed real estate and how it can help them diversify their portfolios by region and sectors to produce comparable and often better returns. Exposure to this asset class, he adds, can also provide income and some level of inflation sensitivity to help balance exposure to global asset classes. To capitalise on this opportunity the firm is focused on expanding its footprint in Asia and today have 24 employees across its offices in Tokyo and Hong Kong and has plans to open an office in Singapore in 2023.
Best practice
As innovators in evolving asset classes, the firm is also actively involved in working with management teams to promote best practices, while also providing thought leadership to educate investors on opportunities in these markets. Cheigh believes that these opportunities may be just around the corner in the listed real estate market.
“We believe attractive entry points are emerging for investors as REITs have historically performed well at the end of the rate hiking cycle and the transition to an early cycle environment. Adding an allocation to REITs right now is an attractive opportunity, and additional pullbacks in the listed market can serve as entry points,” he says.
Cheigh concludes by noting the role of active management in real assets.
“Real assets are uniquely positioned to benefit from active management. From 2010 to 2021, global real estate managers outperformed their benchmarks at nearly twice the rate of large-cap equity managers. We believe this advantage stems from the time and resources that REIT managers like ourselves are able to devote to understanding real estate fundamentals and the factors that may affect listed equity performance. Generalist managers with allocations to real estate lack the resources to provide deep analysis and may create potential pricing inefficiencies that REIT specialists can leverage.”