Our Investment Strategy
The objective of Clerestory’s investment professionals is to commit capital to funds that provide appropriate risk-adjusted returns through either current income and/or capital appreciation, depending on investment strategy. Clerestory looks to identify funds that are in a superior position to take advantage of both global and local changes to the real estate industry and opportunities provided by underlying real estate markets. The firm places a high premium on protecting and preserving investor capital while seeking to identify those funds capable of outperforming the market.
Additionally, Clerestory welcomes direct investment in underlying funds by its fund investors that seek to gain additional exposure to a specific strategy, subject to Clerestory's ability to secure a sufficient allocation for Clerestory-sponsored funds. The Principals encourage their investors to regard Clerestory as an extension of staff, enabling investors to broaden their own internal underwriting capabilities.
The Clerestory Underlying Fund Universe
Clerestory is currently investing capital in SC-Opportunistic™ Funds globally.
SC-Opportunistic Funds
Clerestory's focus in its fund of funds investment platform is on the "opportunity" segment of the real estate funds universe. These are funds (a) typically seeking to deliver higher absolute risk-adjusted returns net of fees, depending on the region; and (b) characterized by moderate-to-high leverage, with short-term holding periods for underlying investments.
To help delineate the real estate opportunity funds universe, Clerestory has established a demarcation line of US$1.0 billion in equity commitments to help classify these funds:
- SC-Opportunistic™ Funds - "small cap" funds seeking equity commitments of less than US$1.0 billion.
- LC-Opportunistic™ Funds - "large cap" funds seeking equity commitments of greater than US$1.0 billion.
Clerestory conducts its own proprietary research on a semi-annual basis to identify both SC-Opportunistic and LC-Opportunistic Funds in the market.
Summary
For its mid-year 2011 update on the opportunity funds universe, which occurred during August 2011, Clerestory identified:
- 95 SC-Opportunistic™ funds seeking to raise approximately US$35 billion of equity; and,
- 21 LC-Opportunistic™ funds seeking to raise approximately US$41 billion of equity.
Real Estate Opportunities Funds Market Snapshot
In evaluating potential opportunistic investments, Clerestory takes into account structural changes in ownership (e.g., privatization of public and corporate-owned real estate), creation of new real estate stock (e.g., expansion of institutional investment markets into new geographies, development of new real estate in emerging economies) and cycles of distress (e.g., capital market dislocations, supply-demand fundamentals).
Other Investments
In addition to the primary investments, Clerestory's funds are designed to allow judicious employment of other investment structures that may uncover additional value.
- Secondaries - Providing liquidity in the secondary markets can be an appropriate strategy for accessing fund investments at attractive pricing. Subject to pre-established investment guidelines, Clerestory has the ability to selectively pursue compelling opportunities in this sector.
- Co-investments - Clerestory welcomes co-investment opportunities in real estate transactions offered by underlying fund managers, especially where incremental capital may make the difference in securing a transaction or take advantage of time sensitive, high-returns opportunities.
Given the lack of transparency often associated with these investments, depth of market knowledge and a broad investment perspective are essential components in pricing analytics. The breadth and depth of Clerestory’s relationships with fund managers provide a competitive edge in evaluating potential opportunities within this challenging market.
Portfolio Construction
When constructing portfolios, Clerestory employs an incremental approach to diversification that seeks to maximize returns and minimize risk with each additional underlying fund. Each target investment is evaluated on a stand-alone basis but must align with a holistic strategic view - on each of the underlying markets, as well as broader macroeconomic opportunities. Clerestory's opportunistic strategies have been developed to exploit specific investment themes based on an assessment of market conditions. In constructing value-added or core portfolios, the firm pursues diversification by property type, geography, investment size and tenant exposure.