Franklin Templeton mulls Asia-Pac or EM Reit fund
Franklin Templeton may consider adding an Asia-Pacific or emerging-market real estate investment securities fund to its existing duo of Reit funds, although it has no current plans to do so.
The timeframe for a launch would depend on investor appetite, says Wilson Magee, the asset manager's New York-based director of global Reits.
The firm, which runs a global and a US Reit fund, has recognised the importance of Asia and other emerging markets by switching its benchmark away from one that focuses solely on Reits.
California-based Franklin Templeton began expanding investments beyond Reits in January to take a more reflective, balanced global exposure to property.
It officially changed benchmark on May 1, says Magee, lead manager of the two listed property funds. The products had a total of around $1 billion in AUM as of the last reporting period – 70% in the global vehicle and 30% in the US.
Traditional global property equity benchmarks are much more representative of the global real estate opportunity set, global real estate wealth and different countries' GDPs than the funds' previous, Reit-only benchmark, Magee said during a recent trip to Hong Kong.
“The previous benchmark [the S&P Global BMI Reit Index] was 55-60% US, but our current benchmark [the FTSE Epra/Nareit Global Developed Index] is only about 40% US,” he adds. “So it's not a perfect proxy for GDPs around the world, but it better reflects them.”
For example, there are very few Reits listed in Hong Kong, a big property market. As a result, Hong Kong used to represent 2% of Franklin Templeton's global Reit benchmark and now accounts for about 12%. “So Asia is much better represented in our new benchmark than in the old one,” says Magee. “And clearly the new benchmark is much less US-focused.”
Has the fund seen a boost in performance as a result of the benchmark shift? “It's too short term to make a judgement really,” he says. “In the initial few months of the year it was actually the opposite: US Reits were outperforming global property stocks at the start of the year – and they still are, but less so.”
Similar benchmark-changing moves are being made by asset managers worldwide to reflect the greater and growing importance of Asia and other emerging markets to the global economy.
Meanwhile, Franklin Templeton's global real estate securities fund is considering taking its first exposure to Brazil. “We need to do more homework before we invest there,” says Magee, who was in the country earlier this year for that purpose. “But we will likely invest there at some point.”
Nor does the global fund have any exposure to India, but for different reasons. India has a relatively small listed real estate market – of its $200 billion in property, only 4% ($8 billion) is listed. It doesn't help that there is no legal framework for Reits in the country yet, although one is being developed.
If there was more transparency, says Magee, it would be easier to invest in Indian property. “Once we can see what is in place and what the laws and regulations look like and the characteristics of the businesses, we might become interested in India,” he adds.