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70% investors have increased allocations, half to new managers

Institutional investors are not shying away from committing to new vehicles during the Covid-19 pandemic, with more than 70% of investors saying they had increased allocations during 2020.

The NAREIM Capital Raising and IR meeting last week heard from 23 institutional investors on their experiences during Covid – and how they were viewing their portfolio allocations in the months and year ahead.

A poll of investors revealed that just over half of investors (53%) had increased allocations, including to new managers, in 2020, while 18% had increased allocations this year, but only to existing manager relationships. Almost one-third, or 30%, had decreased allocations or were flat over the past year.

A similar trend was seen when it came to strategy and expanding the opportunities of existing mandates. A poll of both investors and managers attending the NAREIM meeting revealed that seven out of 10 had added new strategies to mandates during 2020 – while three out of 10 were investing within the guidelines of existing strategies.

The meeting saw managers and investors discuss investment opportunities, the long-term impacts of Covid on capital raising and IR processes as well as the use of non-financial metrics for reporting during small, breakout group discussions.

From first-time meetings all moving online, to the future of annual investor meetings and the window of opportunity for distress. Key highlights from the breakout group feedback rounds, included:

  • Window of opportunity. One investor commented that the wall of dry powder targeting private reaI estate would make it “difficult to deploy capital. There is so much capital out there,” the investor said, asking how long expected distress would remain in the market.

  • Things that will remain post-Covid from our work-from-home experiences.

  • First-time meetings on Zoom. Asked what could be long-term changes to the way we work following Covid, one investor said all first-time meetings would be online now.

  • Returning to ‘normal’ will be a tale of two cities, between those able and comfortable to return to the office and invite visitors to see them – and those that may have pre-existing conditions or are at higher levels of risk and discomfort in getting back to the face-to-face conversations. There was a general consensus of a return to business meetings and in-person events of an effectively-proven vaccine, plus six-months.

  • As managers begin the return to typical business meetings and travel, one manager advised managing investor expectations related to access to portfolio and asset managers and acquisitions professionals within their teams. Those senior executives were currently not traveling, and therefore able to be called in – ad hoc – to discussions with investors. Once business began to resume, investor expectations should be managed about the ease of getting them on the phone or Zoom.

  • One manager commented that an investor had already invited them to travel for a meeting, with options for digital connections as well.

  • Be prepared to pull up all documents in real-time. Another said there would be no excuse for not having all the documents to hand during due diligence meetings and discussions. The investor said, all sides now had remote access to the firm’s systems and so documents could be pulled up in real-time during meetings. The need to be prepared going forward was real, as investors would not appreciate being told, “we’ll get it for you later”.

  • Looking to ESG and Diversity and Inclusion. Investors and managers were asked to discuss if there were non-financial metrics – after the track record has been assessed – that were being used to compliment the underwriting of manager relationships. For the majority of investors, diversity and inclusion was emerging as a metric they wanted to add to the mix of non-financial information, although one investor commented that it was difficult to correlate diversity and inclusion to performance when evaluating a manager’s ability to produce returns. 

  • In discussing preliminary findings from the 2021 NAREIM Diversity & Inclusion Survey, managers and investors provided the following areas for additional research:

  • Breaking down diversity metrics by age group to better analyze D&I trends

  • Correlating an organization’s diversity to turnover and retention rates

  • Correlating manager performance to an organization’s diversity

Members can download the polling data here.

Members can download the preliminary data on on gender and ethnicity from the 2021 NAREIM Diversity & Inclusion Survey here.

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