The Hedgeweek Interview: Todd Voigt, Cohen & Steers: "We are getting through the credit crisis, but we are not yet out of the woods"
Todd Voigt, manager of Cohen & Steers' Global Real Estate Long-Short strategy, which differentiates itself through bottom-up fundamental research combined with top-down thematic views, says the lack of history and research by other investors in the global real estate markets result in extremely attractive investment opportunities.
HW: What is the background to your company and fund?
TV: Cohen & Steers was founded by Martin Cohen and Robert Steers in 1986 as the first US investment advisor to focus on real estate securities. The firm was founded with the belief that an actively-managed portfolio of publicly-traded real estate investment trusts and other real estate companies can provide investors with the beneficial investment characteristics of direct real estate ownership, with the added benefits of professional asset management, liquidity and true market pricing.
Today, Cohen & Steers is recognised globally as the real estate securities market leader in terms of performance, assets under management, range of portfolio strategies offered and the experience and depth of its investment team. At the end of June, the firm had USD27bn in assets under management.
Cohen & Steers has been a pioneer in creating investment strategies and vehicles for real estate securities and provides a full range of real estate strategies, including global and regional long-only real estate securities portfolios, a global long-short real estate strategy and a global private real estate multi-manager strategy.
Recently we have seen an increasing demand from our clients and real estate securities investors for hedged real estate strategies that can consistently generate superior risk-adjusted returns. We launched the Global Real Estate Long-Short strategy on March 31 this year to broaden our initiatives in the alternative investment area and capitalise on diverse and increasing investment opportunities in the global real estate securities markets.
A global real estate long-short portfolio manager with 11 years of experience, I joined Cohen & Steers to manage the strategy, which represents a natural addition to the firm's offerings. At the end of August the strategy had USD26m million in assets under management from seed capital provided by Cohen & Steers.
HW: Who are your service providers?
TV: Goldman Sachs Group is the administrator, custodian and prime broker for the Global Real Estate Long-Short strategy, and the legal advisors are Ropes & Gray and Maples & Calder. PricewaterhouseCoopers is the auditor for our private funds that pursue the strategy.
HW: How and where do you distribute the funds? What is the profile of your current and targeted client base?
TV: The Global Real Estate Long-Short strategy is available to qualified investors through one of two US and Cayman Islands private funds or a separate account. Currently, all the strategy's assets come from seed capital provided by Cohen & Steers. Our targeted client base includes US and non-US family offices, funds of funds, high net worth individuals, endowments and foundations.
HW: What is the investment process of your funds?
TV: The investment objective of Cohen & Steers Global Real Estate Long-Short strategy is to maximise absolute risk-adjusted returns with relatively low volatility and low correlation to the broad equities and fixed income markets. We will execute this strategy by investing primarily in the global publicly-traded real estate securities universe and through a hedged strategy that will use long and short positions in global real estate securities and real estate-related instruments.
We invest primarily in real estate securities and other publicly-traded real estate-related companies, mortgage Reits, mortgage originators, homebuilders, commercial brokerage companies and land developers, through common stock, preferred stock, unsecured debt, commercial mortgage backed securities, residential mortgage-backed securities, put and call options, credit default swaps and property-related swaps or other derivative instruments.
We use both a top-down and bottom-up approach to build and manage the long portfolio. The top-down analysis focuses on key real estate themes that we believe provide strong fundamental value creation opportunities, and the top-down themes are supported with a bottom-up valuation discipline.
We seek to match positive real estate themes with attractively valued companies that have strong balance sheets and management teams focused on net asset value creation and cash flow growth. We also seek to identify companies whose valuations are closely affected by the real estate cycle.
The strategy may take short positions in publicly-traded real estate securities and real estate-related instruments in order to seek opportunities to generate alpha and hedge market risks. The ratio between alpha shorts and beta shorts will fluctuate according to market conditions.
HW: How do you generate ideas for your funds?
TV: For long investments, Cohen & Steers employs a proprietary valuation model to value securities, and we use the output of the model to help generate ideas. We also look for companies whose valuations are closely affected by the current real estate cycle.
To identify alpha short investment opportunities, we look for negative catalysts that will drive the value of the shorted security or instrument lower. Examples could include our expectation of deterioration in fundamentals that may cause cash flow or valuation multiple reductions, indicators of potential accounting irregularities, poor corporate governance, distressed balance sheets, potential asset impairment charges or any other factors leading to NAV deterioration. Additionally, I use my experience and network of contacts to generate ideas.
HW: What is your approach to managing risk?
TV: Net exposure is the primary risk control used for the portfolio. Under certain market conditions, the fund may be net short. Net exposure is based on market conditions and top-down themes and is adjusted in light of the market outlook, valuations and the portfolio's overall risk profile.
The strategy is diversified across instruments, country, currency and property sector. Cohen & Steers will manage the portfolio's total exposure to currencies and countries and may take action to reduce or manage the related risks through hedging instruments.
In addition, I use quantitative measurements such as beta, value at risk and back-tests to measure risk. I also monitor the portfolio on a real-time basis using Bloomberg, and review daily risk management reports provided by Goldman Sachs, the fund's prime broker.
HW: What opportunities are you looking at right now?
TV: We believe that there will be continued volatility in global real estate securities and we endeavour to take advantage of that volatility on both the long and short side of the ledger. A few examples of long investments that we find particularly interesting today are publicly-traded debt, common stock and preferred securities of US Reits, UK Reits, western Canadian real estate companies and US mall Reits.
HW: What events do you expect to see in the real estate sector in the year ahead?
TV: We believe we are getting through the credit crisis, but we are not yet out of the woods. We expect to see upward pressure on both real estate financing rates and capitalisation rates and prospective downward pressure on rents and property cash flows. We expect to be invested in companies well positioned to sustain themselves during this difficult environment as well as take advantage of distress as it arises. Further, we will be short companies that are not positioned well for this environment.
HW: How will these developments affect your portfolio?
TV: We will continue to maintain a defensive stance in terms of our equity net long and/or short exposure until we see signs that the credit crisis is easing, and will only invest in companies with extremely strong balance sheets and quality assets with stable cash flows.
HW: What differentiates you from other managers in your sector?
TV: We believe our approach of bottom-up fundamental research, combined with top-down thematic views, differentiates us from our peers. Our strategy offers the opportunity to capitalise on discrepancies across property sectors, countries and companies. We also seek to take advantage of variations in property sector fundamentals due to changing economic, real estate and stock market cycles.
We believe lack of history and research by other investors in the global real estate markets provides extremely attractive investment opportunities. The majority of our peers do not invest across the entire capital structure; rather, they are predominately equity investors.
HW: Do you have any plans for other product launches in the near future?
TV: Cohen & Steers plans to seed an Asia Pacific Real Estate Long-Short strategy in the next few months. Plans are still being developed.
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