Real estate as a “core”

Genevieve Signoret

(Hay una versión en español de este artículo aquí.)

Real estate both is and is not a core allocation for us. That is, we do not handle it inside our liquid alt portfolio tranches the way we do a global stock index fund within our equity holdings. Within equity, we buy the world market, then overweight certain sectors or regions or countries therewithin. We do no such thing with real estate within liquid alts. But, within liquid alts, we do hold real estate as a core allocation in the following sense: because of its relatively low correlations with other asset classes, we nearly always own some.

For example, during last year’s bear market, even when no liquid alts under the sun appealed to us, property included, still we owned property. Given our asset allocation approach[1], this meant that we spent the good part of 2022 buying heavily into falling property-linked asset valuations. Since then, our reward for this discipline has come with every property sector rally such as the one enjoyed from October 2022 through January 2023. During such rallies, our by-then voluminous property holdings we had bought cheaply soared magnificently.

Also, by opening client positions in their portfolios in international real-estate–linked ETFs, we can quickly dilute their exposure to the asset class, which tends to be highly concentrated both geographically and in small set of individual properties.

Finally, given that many of our clients manage their real estate portfolios either in pursuit of non-financial objectives or as a side gig, through the stock market, we can ensure that at least a portion of their real estate holdings are professionally managed.

Real estate performs poorly in times of rising interest rates, so it has dragged on our portfolio performances. But rates do not rise perpetually.

We hold to our rule: use real estate as a liquid alt “core”—meaning, within liquid alts, nearly always hold some.

[1] We detail this approach in Spanish here. For a version translated to English by Google, click here.