Bayerische Versorgungskammer (BVK), Germany's largest public occupational pension fund, has teamed up with Goldman Sachs Vintage Funds, a subsidiary of Goldman Sachs Asset Management, to manage a €300m global secondaries real estate fund.
The fund will invest in both traditional real estate limited partnership interests as well as more complex structured and non-traditional secondary transactions around the world. Universal Investment Luxembourg will administer the BVK structure through which the Munich-headquartered BVK made its commitment to the fund.
The somewhat shadowy secondaries market has been growing rapidly in major institutional real estate portfolios, as it can offer opportunities for nimble investors to take advantage of more secretive, less-publicised asset sales often arising from sudden liquidity problems at existing funds, or where certain assets might prove to be illiquid on the open market.
In this case, BVK's bringing in of Goldman Sachs to manage the fund on its behalf means that instead of buying houses, lands or assets directly, the fund participates in existing fund or asset structures through limited partnerships. It operates essentially as a pure financial investment, with often limited rights and co-determination.
BVK's head of global real estate investment management, Manuel Philippe Wormer, said: "We believe that the diversification that the strategy offers across underlying property types and vintage years, combined with strong structural tailwinds that will result in GPs (general partners) and LPs (limited partners) continuing to seek liquidity solutions, make this an accretive addition to our real estate portfolio."
Just two years ago Goldman Sachs closed on its most recent fully-dedicated secondaries fund with about €2.6bn in commitments, and by March 2021 had already transacted more than 50 deals, scooping up a range of assets that were suddenly available as a result of the coronavirus pandemic.
Igor Ostrowski, MD at Goldman Sachs, said, "The fund will allow BVK to gain access to an exciting segment of the secondaries market that continues to evolve and grow meaningfully. This fund builds on our long experience in secondary real estate, a market segment in which we have invested more than US$6 billion in over 75 transactions since 2010."
Last year, in its first move into the sector, BVK, which overall now has €107.3bn of AUM, tied up a €300m secondaries partnership with StepStone Real Estate to target secondaries in opportunistic, value-added, and core-plus funds predominantly in the US and the Asia-Pacific region. Again, that vehicle is being managed by Universal-Investment-Luxembourg, to provide secondary liquidity to investors and managers of private real estate vehicles.
At the time, BVK's Wörmer said that, while BVK has been active in private equity secondaries since 2018, the time was now right for a move into the real estate secondaries market.
Through the separate account with StepStone, BVK, which has been investing in global real estate for more than 20 years, said it was seeking to increase its real estate exposure in North America and Asia. “One benefit of an indirect strategy is the efficiency of investing internationally and adding exposure that complements BVK’s current portfolio. The SMA structure is highly customised, allowing BVK to shift its targets over time as the market environment and BVK’s views of it and overall portfolio construction objectives may shift.”
BVK’s real estate portfolio was 69% allocated to Europe, including 44.3% to Germany and 24.7% to the rest of the region, as of December 31st. Meanwhile, North America represented 18.5%, Asia 9.9%, Australia 1.3% and South America 1.2% of its property holdings.
Wormer stressed the long-term nature of BVK's commitment to the secondaries market. “While the current, post-covid environment may offer some situational opportunities to provide secondary liquidity, we view secondaries as a permanent structural element of the global private real estate market and expect us to participate long term,” he said.
Brendan MacDonald, partner and COO of StepStone Real Estate, said at the time: “This partnership further expands our market-leading position as a liquidity provider to real estate vehicles around the world by investing in funds, secondaries, recapitalisations and co-investments across the risk spectrum.”
He added, “We think it is an interesting time to be investing in the real estate secondaries market. You’ve seen the pandemic interrupt and delay business plans for managers. GP-led secondary transactions can be caused by changes in business plans, where assets are going to have to be held longer than originally anticipated and additional capital may be required in order to get those assets stabilised.”
Data from Greenhill and Evercore show that assets under management for real estate secondary funds grew significantly between December 2016 and June 2020, nearly tripling from $9.3 billion to $27 billion.
