Tags: Wall Street | real estate | investment | manager

Smart Investment Money Goes for Real Estate

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Monday, 01 Dec 2014 08:28 AM Current | Bio | Archive

I know that many people are unhappy with the way their money managers have been handling their investment portfolio. This becomes readily apparent to me every time I sit in one of those meetings between the client and their investment advisers.

The meeting pattern is so predictable. First, the review of the current portfolio holdings explaining that while they didn't meet the benchmarks, the portfolio did better than others did. The implication being that it was a good thing that they were handling the investments otherwise the client would have lost more money with the other guys.

Second, the presentation of the predicted investment climate for the next month or quarter is made. All sorts of glossily printed charts and graphs based on something called data tell the future in mathematical terms. The chief economist of the firm has pronounced what will happen and the client is expected to dutifully be in awe of his brilliance.

You would think that listening to these guys that the world of investment consists of primarily stock and bonds and something called alternative investments.

I have the impression that they lump everything they actually know little about into the alternative investment category.

As we know now from the current set of investigations into the commodities and currency markets these are rigged markets. These are not much different to investigations into the stock and bond markets showing that these are also rigged.

My understanding is that the reason why index funds seem to be recommended by some people who are in the know is that by investing in these the rigging of the markets is less relevant. When the riggers are making money, then that averages out in the index since it reflects the entire market category on which the index is based.

It seems to me, as I sit back in an incredibly expensive conference room chair enjoying the coffee and those extremely expensive European cookies, that if the money manager is using say the S&P 500 index as the benchmark it might be best just to buy the benchmark, forget about trying to beat it, save a lot of fees and generate a bit better net yield.

But then again, I'm a lawyer who does not have an investment license, just some analytical sense. The way I look at things is that if somebody would make the claim that the money managers make, then what goes to prove that it is true.

What is true is that most of the individual wealth of the world is held in two asset categories — real estate holdings and closely held business operations. Residential real estate is mostly held in individual names and trusts, while commercial property is held by corporate or other investing entities.

Private investment is growing in importance with the entry of sovereign wealth funds, family offices and private banks as the vehicles individuals use to make their property-related investments. It's enabled these investors to utilize sophisticated financial instruments as well as traditional direct ownership.

When someone tells you they made their money in real estate, they generally are talking about privately held and not publicly traded investments. Publicly traded interests can earn some amount of gains, but they are not the vehicles that lead to becoming wealthy.

There are reasons for this. Investors in the publicly held markets are looking for a return on investment, which shows up in their monthly portfolio statements. In order to build real wealth it takes a different investment perspective — that is, building value in the underlying property investments.

There are two keys to this process: build value and protect wealth from loss.

Capital from the global private wealth sector has been flowing predominately to Europe, Asia and the United States. Latin America, Africa, the Middle East and elsewhere get only some crumbs.

The events unfolding currently indicate China and Europe as investment destinations have a growing risk profile. China, however, does not have the traditional value depth that Europe enjoys.

I have little doubt that more money would be piling into the United States right now were it not for the fact that the policies of the government are hostile to foreign capital providers. With the U.S. demanding, for example, the automatic exchange of private financial information between governmental tax authorities, everyone —individually and institutionally — has to think long and hard before becoming exposed to the U.S. tax system. Compounding this are the risks of the American legal system.

Historically, one of the two foundations of wealth, whether big or small, has been based on real estate investment. It's a huge marketplace that is so fractionalized that even Wall Street and London rigging the market is realistically impossible. A true safe haven.

That's why, as I see it, the smart money investors put their financial faith in the enduring value of real property investments.

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Kleinfeld
I know that many people are unhappy with the way their money managers have been handling their investment portfolio. This becomes readily apparent to me every time I sit in one of those meetings between the client and their investment advisers.
Wall Street, real estate, investment, manager
807
2014-28-01
Monday, 01 Dec 2014 08:28 AM
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