10 vehicles are enough to achieve significant and attractive diversification

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In this month's interview, we speak to Béatrice Guedj, Head of Research & Innovation at Swiss Life Asset Managers France, about the EDHEC-Risk Institute publication "Benefits of Open Architecture and Multi-Management in Real Estate Markets— Evidence from French Nonlisted Investment Trusts" produced as part of the Swiss Life Asset Managers France research chair, which shows that modern investment management techniques can create value for SCPI investors. We also touch upon the upcoming research on the replication of real estate indices and future development in the real estate investment sector.

Béatrice Guedj, Head of Research & Innovation at Swiss Life Asset Managers France


The first research publication from the Swiss Life Asset Managers France research chair at EDHEC-Risk Institute, which presents the benefits of selection and allocation decisions in the French non-listed real estate investment fund market, was released in June. What are the most important points raised by this research in your view?

Béatrice Guedj:

 Firstly, the benefits allocation in non-listed real estate clearly enhances the risk-return profile to the benefit of investors in a market characterized by a wide dispersion of long-term performances. Secondly, our research suggests that as few as 10 vehicles are enough to achieve significant and attractive diversification. Usually, diversification comes at a cost for an individual investor given the frictions prevailing in the SCPI market; our ambition is to offer a solution which should avoid such frictions. Importantly, we show that risk-adjusted performance is driven by price return and not by yield, as the layman might think. More importantly, our research paper fits into a context where the non-listed real investment fund market has been on a rising trend given the strong demand from households for real estate: as of today, the market cap is over €70 billion compared to less than €40 bn in 2015. As such, it marks a milestone given the value generated by our allocation process for long-term savers. As selection and allocation are underpinned by modern asset management tools usually applied to the financial asset management industry, this makes the non-listed real estate investment market also more attractive for second-tier institutional investors with a small ticket size.


Another key finding of the research relates to the relevant candidate attributed for SCPI selection. Amongst the eight SCPI attributes covered in the analysis, the authors identify three specific candidates that could help explain the cross-sectional differences in risk and return. Can you tell us more about this?

Béatrice Guedj:

On the selection side, of the eight attributes screened, we showed that fund size, volatility attributes and past performances statistically explain the cross-sectional differences in performance risk and return. More specifically, small vehicles, or small market-cap SCPIs, tend to outperform in line with the “small size paradox” that is well known in other alternative asset classes (hedge funds or private equity). Historical evidence also suggests that low-volatility vehicles outperformed their peers, like the low-volatility anomaly familiar on the equity markets. Finally, the outperformers tend to outperform in the following periods while the underperformers tend to underperform as if they were in a “lock-in state”.


The research chair’s next topic of interest will be the replication of real estate indices with a focus on the French commercial property market. What are the key questions that will be addressed?

Béatrice Guedj:

The French commercial property market is one of the largest in Europe in terms of the investible universe. France is usually targeted as one of the key markets from an asset allocation stance when it comes to real estate exposure. Institutional investors such as pensions funds might need to increase and diversify their allocation towards French commercial property with a preference for the non-listed sector to avoid the volatility of the listed market. Getting access to products with idiosyncratic features similar to French commercial property might be difficult or not feasible below a certain amount of equity. We wanted to resolve this issue with a smart and innovative solution. The EDHEC-IEIF Monthly Commercial Property Index (France) widely covers the French market, in term of sectors as well as locations. So the first step would be to build an SCPI Portfolio as a subset of the index universe to replicate the EDHEC-IEIF Monthly Commercial Property Index where there is a need among French institutional investors, who are familiar with the French market, to diversify their exposure from direct to indirect investments through such a replicator. Also, we can imagine that investors in need of access to specific sectors (healthcare, offices, logistics, etc.) might use a replication approach through a sub-index of the EDHEC-IEIF Monthly. Similarly, given the popularity of the MSCI universe, we are working on replicating the MSCI France Annual Property Index through a non-listed real estate portfolio of SCPIs. Ultimately, the aim is to make both solutions available for the benefit of all.


As a major player in real estate asset and fund management in Europe, how do you see the real estate investment sector developing in the near future?

Béatrice Guedj:

Covid-19 has accelerated structural changes, specifically the digitalization, climate and societal transitions: as a major player with a strong track record, Swiss Life Asset Managers is at the forefront of these changes, providing sustainable properties across all asset classes in Europe (residential, offices, retail, hospitality and logistics) to secure stable income streams over time. One iconic example is the acquisition of Harmony, the future global head office of ENGIE, the leading listed French renewable energy firm: it is a zero-carbon building complex made up of 4 buildings with 100% green energy on-site. The acquisition was made at the end of 2019, before the Covid crisis, meaning that Swiss Life Asset Managers was ahead of the cycle in terms of structural changes. On top of that, we are proud to be a game changer in the French office market!



About Béatrice Guedj

Béatrice Guedj is Head of Research & Innovation at Swiss Life Asset Managers (SLAM). She holds a PhD in Quantitative Economics. Béatrice has been in the real estate research and strategy fields in Europe for more than 20 years, involved in Real Estate Asset Allocation and Quantitative Research for Institutional Investors and Sovereign Wealth Funds. She was Managing Director of Grosvenor Fund Management in Continental Europe for 12 years. Béatrice remains highly involved to key bodies such as senior advisor at the Institut de l’Epargne Immobilière et Foncière and is co-manager of the REFINE network of academic research on commercial real estate hosted at Institut Louis Bachelier to promote quantitative research in the property industry