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Portfolio Managers' Notebook

Author: Institutional Real Estate, Inc.
Publisher: Institutional Real Estate, Inc.
Year: 2013
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There exists a framework for effective portfolio management that instills a disciplined, comprehensive approach. By creating a framework for understanding the changing real estate market and capital markets, investors can expect to have the upper hand in assessing market/portfolio opportunities and risks. Yet, despite the use of research and modeling, and regularly monitoring property fundamentals and performance data, portfolio management will always be part art and part science. Portfolio managers must understand the applications and limitations of their analytical tools and techniques, and incorporate their expertise, experience and good judgment into their decision making.

What is portfolio management and its purpose? Maybe it can best be described as the art and science of making decisions about investment mix and policy; matching investments to objectives; determining asset allocation; monitoring, managing and rebalancing the portfolio; and balancing risk against performance. Real estate portfolio management is a continuous and iterative process. Typically, a client’s risk and return parameters change over time in response to changes in internal and external circumstances. A client’s existing real estate portfolio also changes, and both client and adviser should continually revise their economic, capital market and property market expectations. This suggests that monitoring and revising the account’s portfolio strategy, and the composition of the portfolio itself, are an ongoing part of the portfolio management discipline. Particular concerns to be monitored include the efficiency of the portfolio (or conversely, its exposure to unsystematic risk); the appropriateness of the portfolio’s capital structure; and, if applicable, its lease duration exposure and credit exposure by industry or firm. Real estate portfolio management is dynamic, both in theory and in practice.

The global financial crisis, for example, produced new realizations and the subsequent adoption of new practices and tools. During recent years, many of these portfolio management topics have been addressed in the pages of The Institutional Real Estate Letter. In this special report, we present a collection of 14 portfolio management–focused articles, published between 2011 and 2013.

Introduction . i
Building a portfolio 1
Best asset in a supporting role 4
The right stuff 9
Assessing manager operational risk . 14
The paradox of choice . 17
Managing risk, part I . 22
Managing risk, part II 26
Investment strategies and timing . 31
Building investor confidence 36
Devising real estate strategies 42
A dummy’s guide to risk . 45
A beta approach . 50
Know more, invest smarter . 54
Financial leverage and risk 60
About Institutional Real Estate, Inc. . 65