Pictet Alternative Advisors is launching a new real estate fund targeting more than €150m.
The value-add pan-European closed-ended fund will be led by Zsolt Kohalmi, who has joined PAA from Starwood Capital, where he headed the business’s European acquisitions.
The fund has already had its first closing after the partners of the firm made a “significant commitment” and is in talks over several potential acquisitions, including one in the UK. It is targeting around a 15% return.
Managed by a 14-person team, the fund will invest in the “mid-sized” segment of the market across sectors such as offices, residential (including student accommodation and senior living) and light industrial assets in Western Europe’s gateway cities.
The team has been deployed across six of Pictet Group’s offices in Europe – the UK, Germany, Sweden, Spain, Luxembourg and Switzerland.
PAA is the wholly-owned alternative investment company owned by Pictet Group. It currently manages around £20bn, of which at the end of December £2bn was in real estate. The company is now aiming to grow its share.
“It is important not to buy the market. One has to find those opportunities where you have some kind of a problem and for that reason the off-market opportunities can allow you a better entry point,” Kohalmi said.
“Volatility in certain European markets over the coming years – for example, in the UK due to Brexit – will lead to a variety of entry point opportunities, hence the importance of a local presence in our six offices to get the ‘first call’ for transactions.”
He added: “Very few real estate investors are good enough to target an entry point exactly. What you need to do is find the best risk-adjusted transactions where you have that value-add. If you create enough room in your returns, you can expect that volatility and still be OK.
“At the moment it’s more likely you will find the right risk-adjusted opportunities in slightly smaller transactions size, so therefore we have not tried to go mega with the fund.”
On the increased number of outflows from funds, Kohalmi said he saw it as a potential opportunity.
“It’s never easy. One has to be very careful because real estate is an illiquid business. It shows there’s a lot of uncertainty no matter what side of the Brexit equation you are on – and uncertainty means people tend to pull their cash from illiquid products.”
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