Displaying items by tag: private credit
Private Real Estate Benefitting From Tighter Lending Standards
One of the consequences of tighter monetary policy is to curtail housing demand by squeezing affordability. As a result, all sorts of housing activity has cooled such as mortgage applications, new home construction, renovations, and house flipping. While there are all sorts of losers, it’s presenting an opportunity for many private real estate funds who are finding a buyer’s market.
These funds raise money with multi year holding periods so are less affected by the change in the funding environment at least in the short and intermediate-term. Another factor in the real estate market is that many regional banks are pulling back from extending credit given their balance sheet concerns. Overall, it’s a risk for the broader economic outlook but a unique opportunity for private real estate investors.
And, more money is being allocated to real estate - public and private. In the first-half of the year, 43% of institutions surveyed, increased their allocation to real estate by an average of 76 basis points. Sovereign wealth funds also increased real estate exposure from 6.9% to 7.9%. In terms of geography, private real estate continues to be dominated by North American investors.
Private Real Estate vs REITs
Two of the most common ways to invest in real estate are through REITs or private real estate. While both have similarities, there are some key differences in terms of structure, liquidity, access, risk, and return.
REITs are similar to mutual funds in how they are traded and valued. However, they must derive 75% of their income from real estate investments and distribute 90% of taxable income to shareholders. There are a variety of REITs that encompass the whole industry such as retail, commercial real estate, senior housing, multifamily, office, etc.
Unlike private real estate, there is no end date, and they can operate in perpetuity. Private real estate differs from REITs in that they tend to be pooled investment vehicles that give investors fractional ownership.
While REITs must abide by strict tax laws, there is no similar requirement for private real estate. Another difference is that private real estate tends to not offer income. Instead, their goal is to pool capital to acquire and develop a property, hold it for seven to ten years, sell it at a profit, and return proceeds to investors with the operators taking a cut.
Finsum: There are many ways to invest in real estate. Two of the most common are REITs and private real estate. Here are some key differences between both options.
Why Private Real Estate is Poised to Outpace Public
Jonathan Brasse discussed a recent white paper from Swiss alternatives group, Partners Group, about why private markets are poised to grow faster than public ones over the next decade in an article for PEREnews.
In essence, Partners Group notes the changing landscape for private markets, and how they are playing a larger role in financing the ‘real economy’. Since 2016, funding on private markets has exceeded that of public markets. Last year, about $400 billion was raised on public markets, while more than $1 trillion was raised in private markets.
Another change is that companies raising on private markets are generally healthier and more profitable than ones listing on public exchanges. These trends are also evident in the real estate market.
Fundraising for real estate in private markets has been steadily growing, while the number of real estate IPOs has dwindled. In terms of future returns, real estate listed on private markets has a better chance to be renewed, repurposed, and transformed, while such expenditures are less common on the public side given the pressures of quarterly earnings and shorter time horizons of public investors.
Finsum: Private markets have been overtaking public markets in terms of funding. This trend is also happening in real estate markets.
Janus Henderson Betting Big on Alternatives After Outflows
With clients pulling an estimated $130 billion in assets from Janus Henderson since 2017, the fund firm’s new boss is looking to revive the company by leaning into active management and pushing into alternative investments such as hedge funds and private credit. Ali Dibadj, who took over as CEO in June, acknowledged the firm’s difficulties and laid out a turnaround strategy, which includes pushing into some of the most competitive areas of the market to stop the bleeding. A committee of 40 senior staff members met for months to understand what clients want and then created a revival strategy. At the root of the plan is a bet on active management. The firm believes that active management can bring the best returns to investors. In addition to active funds, Janus is looking to focus on liquid alternatives, for which it currently has $20 billion under management. While the division hasn't received much attention, it houses several hedge funds. Last year, the unit had net inflows of $2 billion into products including multi-strategy hedge funds and equity- and commodity-enhanced index funds. Dibadj is also looking into illiquid alternatives. The firm is considering using private credit to augment its fixed-income unit and products tied to mortgage-backed and high-yield securities. Dibadj said the “move stems from client demand for such products.”
Finsum:After seeing $130 billion pulled from its funds, new Janus Henderson CEO Ali Dibadj is looking to stem the bleeding by betting on active management and moving into alternatives such as liquid alternatives and private credit.
Private Credit Managers Remain Bullish Heading into 2023
Based on a recent report from the Alternative Credit Council, the private credit affiliate of the Alternative Investment Management Association, private credit managers remain bullish on their business prospects heading into the new year. In fact, more than 80 percent of global private credit managers are either bullish or cautiously optimistic about the market’s prospects over the next 12 months. The report was based on a survey of 54 private credit managers with $805 billion in combined assets. The optimism comes at a time when more investors are looking to increase their allocations to private credit next year. This was highlighted by a recent survey by Ernst & Young. According to the report, many private credit managers are taking advantage of this tailwind by expanding into new geographic locations. The report said, “Much of this growth is being led by the private equity market, which continues to spearhead private credit’s expansion into new markets. This development is likely to prove valuable for the European and Asian economies as they seek to diversify the sources of financing available to borrowers.”
Finsum:Due to an increase in interest from investors, private credit managers are optimistic about their business prospects heading into the new year.