Catella relaunches resi fund based on implementing ‘Black Swan’ concepts

Catella’s European Residential III Fund (CER III), relaunched as the first ‘dark green’ pan-European residential ESG impact fund, has attracted a total of over €270 million in mandate commitments from Norway’s largest pension company KLP and a group of eight German pension funds and insurers.

The new capital raise lifts CER III’s total equity to €750m since its initial launch two years ago.

The capital raise follows CER III’s transition from a ‘light green’ real estate fund to the certified status of the first pan-European dark green EU SFDR ‘Article 9’ residential property impact fund during the first quarter of 2021, which means the vehicle pursues sustainable societal objectives, or the reduction of carbon emissions, in its investments. The fund is managed by Berlin-headquartered Catella Residential Investment Management (CRIM).

CER III is structured around prominent 'risk engineering' professor Nassim Nicholas Taleb’s pioneering antifragile investing concepts of Black Swan extreme random tail risk events and the alignment of stakeholder interests through ‘skin in the game,’ as developed by the author over a series of best-selling books.

According to Michael Fink, managing director at CRIM, ‘Black Swan events, such as the global financial crisis or the Covid 19 pandemic, have a significant impact on housing markets. Catella has found solutions to manage these market events by implementing Nassim Taleb's concepts. The same random pattern of severe market disruptions will almost certainly occur more frequently in the future with an oncoming tsunami of cataclysmic events related to climate change.

'Prevailing market wisdom dictates that rental income should be maximised, but we have demonstrated that a lack of social justice, or real affordable rents in a portfolio, are a major source of risk. Now with our impact fund, we are adding the third ESG pillar of our investment philosophy by incorporating Taleb’s ‘skin in the game’ thesis through a close alignment of investor and investment manager interests, or the governance ‘G-factor,’ in CER III’s fee structure.’

The alignment of interests in CER III is achieved through incorporating a penalty clause into the management agreement whereby CRIM will donate part of its recurring management fee to a relevant ‘impact-related’ United Nations fund should the manager fail to meet the financial or societal targets set for the fund.

Andreas L. Farberg, investment manager Global Real Estate at KLP, Norway’s pension company for the local government and healthcare sectors, said: "We appreciate that Catella has created a direct link between their fee income as an asset manager and the achievement of the fund’s specified sustainability targets, which contributed to our selection of CER III."