Now that the real estate investment world is back to a somewhat more
healthy, normalized environment, the idea of investing in and through emerging managers has
been resurrected. Just who are these emerging managers and why the renewed interest?
PREA gathered a Roundtable of leaders to discuss the many aspects of this topic.
Leary: I’d like to start by getting from each of
you a concise definition of emerging manager. I
have found that definitions vary from firm to
firm and fund to fund, so much of what follows
in my questions is based on what people think
an emerging manager is. Let’s start with Diego:
What is an emerging manager at CalPERS?
or operators who have less than $1 billion in equity
capital under management, have been in the business
of real estate investing for 12 years or less, and have
not raised more than three institutional funds.
Carrillo: CalPERS Real Estate defines an emerging
manager as an investment management firm with
less than $1 billion of assets under management,
and it is limited to first, second, or third commingled funds and/or separate account investment strategy.
Weidner: Franklin Templeton typically defines
emerging managers as those that have limited institutional experience and a strong desire to provide institutional quality. The best definition, as
Marjorie suggested, is first, second, or third institutional fund-raise and a small size; typically, $750
million is a good starting point.
Leary: Does that mean you have different definitions
for emerging managers in different asset classes?
Carrillo: Yes, each asset class has its own definition
of an emerging manager.
Leary: Emerging managers seem to be getting
renewed focus, the topic of a lot of conversation
in the past couple of years. Is there evidence that
emerging managers produce better results?
Leary: Claudia, you are next.
Faust: Hawkeye defines an emerging manager as a firm
that does not manage institutional capital on a direct
and perhaps discretionary basis. This could be a lift
out from an opportunity fund or a financial services
firm or an operator/developer that traditionally invests
capital from investment advisors to pension funds.
Tsang: I wouldn’t say that it is necessarily a renewed
focus; this has been discussed for a great number of
years. It has just been implemented of late. Maybe
four plus years ago, PREA supported the formation
of a working group to discuss emerging managers.
But to get to your point, Ted, obviously the goal is
to get good returns and to find the managers that
will be able to produce the profits that the pension
funds seek in an era when there is a lot of competition. That is getting a lot of attention right now.
to do better
was that by
the time those
Leary: Marc, you sponsored a paper that showed
that first-time managers tend to do better than
more established funds. What was interesting
was that by the time those managers got to their
second, third, and fourth funds, they started to
Tsang: Emerging managers for the real estate commingled fund program would be managers that are
raising funds under $750 million and have not invested beyond Fund III. For our vehicle for real estate
joint venture operators, the definition is managers