Foreign Reits Gain Flair : by Nicholas Yulico

Foreign REITs Gain Flair By Nicholas Yulico TheStreet.com Staff Reporter 11/16/2006 7:26 AM EST Click here for more stories by Nicholas Yulico With valuations getting lofty for U.S. real estate investment trust stocks, now might be a particularly good time to spread your real estate bets internationally. It used be the case that investing across several domestic REIT property types was an adequate way to get diversification. You could buy Simon Property (SPG - commentary - Cramer's Take - Rating) for mall exposure, Vornado Realty Trust (VNO - commentary - Cramer's Take - Rating) for office exposure and Avalonbay (AVB - commentary - Cramer's Take - Rating) for apartment exposure, for example. Now, industry players advise on adding international real estate stocks to the mix. Since 2002, non-U.S. real estate stocks have outperformed their domestic peers, says Amos Rogers, managing director of the Tuckerman Group, a real estate-focused investment management firm. That's saying a lot, since U.S. REITs have beaten the broader U.S. stock indices for this entire period. For the first three quarters of this year, U.S. REITs returned 24%, while overseas real estate stocks returned 26%, Rogers says. Bullish international investors believe this trend will continue, with the general thesis holding that there are more growth opportunities overseas. Moreover, valuations might be cheaper. The mid-1990's boom that occurred with U.S. REIT stocks is now happening with international REITs, but even faster, says Steve Carroll, managing director with CBRE Global Real Estate Securities. Back in the '90s, U.S. real estate owners converted their properties into REITs to offer a tax-advantaged platform that also gave investors nice dividends. Since 2000, seven countries have adopted REIT or REIT-like structures, including Japan, Singapore, France, and Hong Kong. Countries such as Australia and Canada already had the vehicles in existence. Next year, REITs will be introduced into the U.K. and Germany. The fact that there are still so many REIT conversion opportunities is one major arena for potential growth, industry watchers say. Stephen Coyle, chief investment strategist with Citigroup Property Investors, which manages money for institutional investors, says his firm is currently underweight U.S. REIT stocks because he believes they're expensive. Private equity companies are paying big premiums to take U.S. REITs private, which has been part of the reason the stocks are priced so high. In contrast, in Japan (which approved REITs in 2000), a number of real estate operating companies continue to seed public REITs, Coyle says. Nonetheless, the general strategy of going overseas is a good way to spread risk. "We have found there's very strong diversification benefits going global with regards to REITs, rather than focusing on any one continent," Coyle says. The correlation between real estate stocks in the U.S. and Japan, for example, is just 7%, he says. Even between the U.S. and Europe, the correlation is 40%. Those looking to invest in international real estate stocks currently must buy the stocks from brokers, oftentimes overseas (there are none on U.S. stock exchanges). There also are a host of mutual funds offering international real estate-focused products. But in coming months, the first global real estate exchange-traded fund will be launched by State Street Global Advisors and the Tuckerman Group. The streetTracks International Real Estate ETF will invest solely in real estate stocks located outside the U.S. and will track the Dow Jones Wilshire ex-U.S. Real Estate Securities Index. The ETF will be half REITs (which are required to pay dividends) and half real estate operating companies. The fund's geographic mix will be: Australia, at 19.6%; the U.K., 18.2%; Japan, 17.8%; and Canada, 8.1%, with other Asian and European countries making up the bulk of the product. Barclays Global Investors also is rumored to be planning a global real estate ETF, but the company declined to comment for this story. The global real estate stock market now has a market capitalization of $720 billion, with half of that in the U.S. Much of the recent international real estate boom continues to be driven by institutional dollars. Countries like Japan and Australia have been heavily investing their citizens' retirement dollars outside their own countries for many years now. Recently, U.S. pension funds such as CalPERS have earmarked a large amount of money for overseas real estate investment. In Asia, the story of the recent boom in real estate stocks is not just about institutional money, but also retail investors flocking to the sector, says Antony Green, an investment banker with Macquarie Bank of Australia. In Asia, there's a huge demographic change that's going on," Green told attendees of a panel discussion at the annual National Association of Real Estate Investment Trusts convention last week in San Francisco. Aging populations and growing wealth are spurring demand for investments with yield, he said. As well, there's a particular amount of demand from wealthy individuals in Asia who were unable to invest in commercial properties until the REIT structure came along, he added. Macquarie was involved with the first REIT IPOs in Singapore in 2002. At the time, the bank was trying to sell the stocks at an initial dividend yield of 8%. Now, these stocks trade at 5% yields, Green said. This shows that cap rates, or initial rates of return on real estate, continue to fall globally, putting us all in a "low-return world," as many industry watchers like to say. Of course, all this again raises the question of whether overseas real estate stocks are really that much cheaper, given that cap rates across the globe continue to compress. "Nobody overseas is arguing that property-linked stocks are undervalued," says Barry Vinocur, founder and editor of REIT Zone Publications. Nonetheless, "in the real estate investment space, (international) is the fastest-growing area," he says.

Professor David Swensen : Yale Economics : Chief Investment Officer

David Swensen From Wikipedia, the free encyclopedia Jump to: navigation, search David Swensen has been the Chief Investment Officer at Yale University since 1985. He is responsible for managing and investing the University's endowment assets and investment funds, which total about $18 billion. Realizing an annual return of more than 17.2 percent on his investments over the last ten years, Swensen has added more than $12 billion to Yale's coffers, and his consistent track record has attracted the notice of Wall Street portfolio managers. He is chiefly notable for having invented what has become known as "The Yale Model", a mechanism for Multi-Asset Class Investing. After receiving his B.A. and B.S. in 1975 from the University of Wisconsin at River Falls, Swensen pursued a Ph.D. in economics at Yale, where he wrote his dissertation, A Model for the Valuation of Corporate Bonds. Prior to joining Yale in 1985, Professor Swensen spent six years on Wall Street as senior vice president at Lehman Brothers, specializing in the firm's swap activities, and as an associate in corporate finance for Salomon Brothers, where his work focused on developing new financial technologies. Swensen is a trustee of the Carnegie Institution of Washington and treasurer of the "Hopkins Committee of Trustees". He serves as a trustee of TIAA (Teachers Insurance and Annuity Association of America), and a non-executive director of Schroders PLC. He has advised the Carnegie Corporation, the New York Stock Exchange, the Howard Hughes Medical Institute, the Courtauld Institute of Art, the Yale-New Haven Hospital, the Investment Fund for Foundations, the Edna McConnell Clark Foundation, and the States of Connecticut and Massachusetts. At Yale, where he teaches endowment management at Yale College and at the Yale School of Management, he is a fellow of Berkeley College, an incorporator of the Elizabethan Club, and a fellow of the International Center for Finance. Swensen authored Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment in 2000, and Unconventional Success: A Fundamental Approach to Personal Investment in 2005, both published by Free Press. [edit] The Yale Model The Yale Model was developed by David Swensen, and is described in his book "Pioneering Portfolio Management", it consists broadly of dividing a portfolio into five or six roughly equal parts and investing each in a different asset class, each as far uncorrelated to the others as possible. The Yale Model is an example of Multi-Asset Class Investing. Particularly revolutionary at the time, but now becoming increasingly mainstream, was his recognition that liquidity is a bad thing to be avoided rather than a good thing to be sought out, since it comes at a heavy price in the shape of lower returns. The Yale Model is thus characterised by relatively heavy exposure to asset classes such as private equity compared to more traditional portfolios. His ideas have taken some time to spread beyond the USA, but are slowly being adopted in Europe where a particular advocate has been Guy Fraser-Sampson, whose book "Multi-Asset Class Investment Strategy" builds on Swensen's theories and shows how they can and should be adopted by European pension funds. [edit] External links http://mba.yale.edu/faculty/profiles/swensen.shtml http://www.brookings.edu/comm/news/20040701trustees.htm Yale's Money Guru Shares Wisdom with Masses by Chris Arnold All Things Considered, October 5, 2006 · Yale University recently announced a 23 percent return on its investments, swelling its endowment to a whopping $18 billion. The man behind that investment success is David Swensen, one of the most gifted investors in the world. He's made an average 16 percent annual return over 21 years -- better than any portfolio manager at any other university. Nobody has numbers that good. Not at Harvard, Princeton, Stanford, or any foundation or pension fund; Swensen consistently beats them all. And recently, Swensen has become passionate about trying to teach individual investors how best to save for retirement. For a long time, universities invested in a plain-vanilla mix of stocks and bonds. Swensen helped change that. He has built a portfolio with stakes in venture capital funds, real-estate partnerships, emerging market stocks and scores of small, specialized investment outfits. Any tiny market movement changes the balance of the whole thing. So how does Swensen keep track of it all? "I have a calculator," Swensen says with a chuckle. "And then I talk to one of my colleagues, who executes the trade. So it's decidedly low-tech." He also has a nice computer with two flat-panel monitors on his desk, which sits in the middle of the small trading floor where he and his team of 20 analysts work. The monitors show the value of Yale's investments by category. Swensen says he could use automated software to help him balance the numbers each day, but that would take all the fun out of it. The Billion-Dollar Man Swensen, 52, is an unassuming, affable Midwesterner. He could easily pass for a friendly high-school math teacher or a town pastor. But he makes more money than they do. Yale pays Swensen $1.3 million a year. That sounds impressive until you realize that, with his track record, if Swensen started his own hedge fund, he could earn $50 million to $100 million a year. But Swensen would rather work for Yale, where he earned a Ph.D. in economics. He spent five years on Wall Street and then, 21 years ago, agreed to return to lead Yale's investment office. "I had a great time on Wall Street, but it didn't satisfy my soul," he says. "And I've always loved educational institutions. My father was a university professor, my grandfather was a university professor. So there must be something in the genes." Swensen teaches a course at Yale in which he airs his unorthodox view of the basics of a well-diversified portfolio. He argues that, by owning not only stocks and bonds but also holdings in real estate, timber, oil and gas, and other investments, you can get strong returns with less overall risk. A few years ago, he decided he wanted to spread his message to more people. So he wrote a book, Unconventional Success, with advice for the average investor. Swensen warns there's no "one-size-fits-all" approach to investing. But if you want to follow his advice, he shares some basic tips below.

Yahoo! Finance Story - How to Profit From a Cooling Real Estate Market: Why the Rich Get Richer - Yahoo! Finance

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