Time of the asset management specialists
Open-ended and closed-end investment funds are emerging from their most severe crisis in decades. Large segments of the market have collapsed. The sheer number of formerly prominent investment companies that pulled out of the market is a clear message.
The survivors are the ones with pronounced management competency and a spe-cialised skill set.
To back my observation I will tell you about some of the successful players, many of which have been our clients – giving me every opportunity to monitor their performance:
- Things are going very well indeed for specialists like Jamestown – both in the retail client business and in the institutional client business. Going completely against the market trend, this specialist in US real estate collected $700 mln in equity, some $384 mln of which from private investors. It was the third best result in the annals of the company – and this in a year that was slower than any other for closed-end funds as a group.
- In the institutional fund sector, specialists like Beos (corporate real estate) or Redos (large-scale retail real estate) effortlessly raised nine-figure sums among institutional investors.
- Similarly, specialists in asset management of residential real estate – such as Wertgrund or d.i.i. – have had no trouble riasing massive amounts for their investment fund solutions or their separate accounts.
Formerly vastly successful fundraising machines – such as MPC or Ideen-kapital – have more or less vanished from the market. They purported to be competent at everything – ships and private equity, European and US real estate, film funds and second-hand life insurance policies, aircraft, you name it – but ultimately failed to deliver truly impressive returns in any of these segments.
These days, it is no longer good enough to be a brilliant fundraiser, even if fundraising has lost none of its significance. Both private and institutional investors have
asset become more critical. They tend to have more faith in specialists than in generalists. This is why those providers that used to offer a plethora of asset classes and fund types have lately trimmed their focus down to one or two asset classes – gaining immensely in credibility.
Institutional fund providers, too, manifest a trend toward specialisation. Remember the time when “oik” dominated the market with a share of more than 50%? At the time, specialised funds were virtually unknown. Most funds used to invest – just like the public funds did – across asset classes (bypassing only residential property, which was a mistake). Then came LB ImmoInvest with its “building block” funds (“Bausteinfonds”), offering investment funds for specific use types. Today, specialised funds that focus on specific themes are virtually the only ones left. And more and more often, they are run by specialised asset managers.
Gone are the days when it sufficed to compile a pretty prospectus with “easy” properties (ideally let on a 15-year lease to Deutsche Telekom) and to prepare a fantastic story for the sales team (about a Ferris wheel in Singapore perhaps or a giant oil rig, etc.). Over many years, some initiators made a lot of money this way. They are no longer in the market, though.
The market players who remain are the ones with a demonstrable track record in asset management. They need not necessarily be specialists with a narrow focus, but they happen to be that, too, as often as not.
The fund industry would do well to learn from Apple and Steve Jobs. During the 1990s, Apple made the same mistake many companies make when it steadily expanded its product range. But in 1998, Steve Jobs slashed the number of products from 350 down to ten. A decade later he told Fortune Magazine in an interview:
“Certainly the great consumer electronics companies of the past had thousands of products. We tend to focus much more. People think focus means saying ‘yes’ to the thing you’ve got to focus on. But that’s not what it means at all. It means saying ‘no’ to the hundred other good ideas that there are.”