LPs and Emerging Managers in the Portfolio

Experts from the UVIMCO, United Nations, and Texas Teacher pension funds talk about support for small and emerging real estate managers, and offer advice for the next generation of GPs.

Stuart Bernstein

Senior investment manager, Teacher Retirement System of Texas (TRS) and head of the pension’s emerging manager program “This is a mission with a job attached. TRS will be a long-term participant in the [real estate] emerging manager space. It’s under-developed, under-appreciated, and under-capitalized relative to similar private equity and hedge fund emerging manager spaces. [Emerging managers] are the greatest opportunity in [the real estate] space.” When it came to fundraising, though, changes were needed, Bernstein says. “There has to be a paradigm change in the way funds are raised. Fundraises are taking too long and that’s too long as a first-time manager to have no capital inflow. It’s a problem, and on top of that, we ask for emerging managers to look as big as you can.” “As an investor, I should want you to buy, manage, and sell assets. There has to be change.” ■

Eric Lang

Managing director of real assets, Teacher Retirement System of Texas “You want to make a good investment and find that next great firm and manager. Hopefully we are finding a successful firm with staying power, like a Blackstone or a Starwood. It’s important for us to evaluate every manager on their merits, but we do need someone with a verifiable track record.” ■

Jason Love

Director, University of Virginia Investment Management Company (UVIMCO) “What some institutional investors call small, we call normal. We have a strong conviction in investing in the lower end of the middle market and emerging managers. We feel there is better performance, and research supports the fact that smaller funds tend to perform better than larger funds. “The biggest challenge [for emerging managers] is do they have the team necessary to operate a business and to source good investments? Do they have the infrastructure system, the process, and compliance to run a good business? “[UVIMCO has] an operational due diligence team that assesses these issues, and we will help managers institute best practices. We certainly never go into an investment where we felt the manager didn’t have sufficient financial resources or needed more staff. We take a partnership approach.” ■

Roberta Waxman-Lenz

Investment officer – real assets, United Nations Joint Staff Pension Fund (UNJSPF) “Stick to your knitting. If investors see strategy drift during the investment period, whether it’s a shift from primary to secondary markets or from one property type to another, there needs to be a really good explanation. Not sticking to your knitting for the term of an investment period would raise questions on commitment to your mandate and put into doubt whether an investor would invest again.” Waxman-Lenz adds that the UNJSPF does not specially target emerging managers but invests in the “best managers” for its portfolio. ■