Fund Offers Investors Retail Access to Institutional Real Estate

The Versus Capital fund will take a fund-of-funds approach

Giving your clients access to institutional real estate managers is a  low-cost alternative. (Photo: AP) Giving your clients access to institutional real estate managers is a low-cost alternative. (Photo: AP)

Real estate’s ability to diversify and add a potential boost to a portfolio’s returns are well-known, hence the popularity of REITs and other vehicles. But might it be possible to offer clients a better way of investing in real estate by giving them convenient, low-cost access to institutional real estate managers?

That’s the premise behind the Versus Capital Multi-Manager Real Estate Income Fund, a product of the Versus Capital Group in Greenwood Village, Colo., that opened for investments in December 2011. According to Mark Quam, CEO of Versus Capital, the fund is registered under the Investment Company Act of 1940 that will invest in institutional real estate private equity funds.

It’s structured as a no-load fund with a $10,000 minimum that will post net asset value (NAV) daily with a quarterly tender policy for liquidity. Versus Capital will receive a management fee of 95 basis points per year and that it will share with Callan Associates, the sub-adviser. “The reason for doing it as a ‘40 Act fund is there’s a lot of transparency, a lot of regulation around it, (so) it’s a lot easier for individual investors to invest in a 40 Act fund,” Quam said in a phone interview with AdvisorOne.

It’s just like buying any mutual fund out there. You can do it through any custodian, through Schwab, through TD Ameritrade, through your broker, through your advisor. And, it’s 1099 reporting. There are not K-1s. It’s really much simpler from an operations perspective.”

There’s an abundance of real estate investment product on the market, so what motivated Versus Capital to roll out this fund?

Quam believes the REIT market has become so large and followed by so many research analysts that most public REIT companies are driven by growth and not so much steady income.

“If you look at the correlation of REIT stocks to the broader market, I mean it’s almost identical,” he says. “You know the values of REITs are going up and down with the market where the value of real estate doesn’t move with the market necessarily. A lot of investors and asset allocation professionals that I talk to really put publicly traded REITs in the equities bucket as opposed to an alternatives bucket.”

The Versus Capital fund will take a fund-of-funds approach and Quam believes their vetting process has identified the top real estate managers. Versus Capital hired Callan to screen the universe of institutional real estate private equity funds that focused on core real estate.

Callan started the process with over 125 managers and narrowed the list to 23 different funds. Versus Capital conducted interviews and from that pool they selected of 10 managers and 11 different funds.

“We have an initial target allocation to these different 11 managers that we’ve selected to try to reach our objective,” says Quam.

“Our objective is to see an 8 to 10 percent total return net of fees and a 5.5 percent dividend with the objective of growing that dividend over time," he continues. "These funds are existing funds. They’ve got $24 billion under management today. They own over 477 properties across the globe.”

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