5 days ago
Career implications of investment styles…
“Contrarian thinking” is a pre-requisite for outperformance but comes in different forms. Most of us think of it as running into the fire, but that’s often not how institutions outperform.
E.g., office properties currently trade 50% less vs. a few years ago, but value declines don’t necessarily equate to value discounts, which is why there’s very little capital interest.
Another way to ‘think different’ is for investors to expand their opportunity set, focusing on underrepresented parts of the market.
Nuveen, a TIAA company finds value in smaller, non-indexed CMBS offerings. The Carlyle Group is wrapping up an $8-10 billion raise for its 10th real estate fund, and primarily focuses on relatively small investments (<$25mm) in housing developments. And Artemis Real Estate Partners similarly closed a $2 billion fund last year focused on small/mid-market, operationally intensive assets.
Their pitches are all similar: ‘we go into areas before the herd, but we aren’t pioneering.’ …and they’re working, as evidenced by track records and fundraising.
Career implication for early-career professionals: focus on the difference between the various approaches to finding value in an efficient market…
— Index huggers hide. They move capital around and hide behind research, but their goal is fundamentally to stick with the herd. Hard to fail in the short term, but big risks long-run.
— Wildcatters gamble. They occasionally hit it big but typically get wiped out. They often recover/rebound in future ventures, levering their experience, but the learning curve is expensive for investors. Hard to win in the short run, but the payoffs are huge when successful.
— Pioneers establish new norms: They expiriment with incremental moves in capital and fundamental markets. When they get a win, they double down. Being ahead of the crowd comes with huge benefits when the crowd actually arrives (e.g., Carlyle has successfully predicted capital shifts into niche sectors.)
The approaches Nuveen, Carlyle, and Artemis are deploying likely fall between two of these styles (index hugging and pioneering?)
Think about how your firm offers value to its constituents. Does it fit into one of these style buckets? What style resonates the most with you? What style gives you opportunities to build skills?
Check out Nuveen's full post here.
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