Note from Our CIO: Private real estate becomes more accessible

We are adding a new real estate mutual fund to our portfolios, called Versus Capital Multi-Manager, symbol VCMIX. The fund is unique because it is the first and only publicly traded mutual fund to offer exposure to private real estate investments.

Private real estate by definition is not publicly traded and is therefore normally a completely illiquid investment. Public real estate mutual funds generally invest only in REITs (real estate investment trusts), which are publicly traded real estate companies that have all the volatility of individual stocks. Versus has succeeded in creating a structure where you have nearly the same liquidity as a publicly traded mutual fund combined with the price stability of private real estate.

There are a few trading restrictions on VCMIX. We can buy it on any trading day, but we can request redemptions only one day per quarter. Due to this inconvenience, we are using VCMIX only for clients with significant assets who can invest at least $50,000 in the fund.

Other features of the investment in VCMIX include:

• Our total target real estate exposure for our portfolios will remain at 12% of non-bonds. VCMIX will account for half of that, if you meet the $50,000 minimum investment. Clients will be put into the new real estate fund with sensitivity to the tax implications from selling existing REITs. If the minimum investment size cannot be met, then you will continue to be invested in our publicly traded REIT mutual funds (which continue to be an excellent solution).
• There are about 15 underlying funds inside VCMIX, 10 of which invest only in private real estate.
• Versus invests in the private real estate funds alongside major institutional investors such as large pension funds.
• Versus has hired Callan Associates as its real estate sub-advisor. Callan advises on $1.6 trillion of real estate assets, and its clients have included some of the largest institutional investors, such as CalPERS.
• VCMIX’s mandate is to stay on the conservative end of real estate with cash flows that are durable throughout different economic conditions.
• The target dividend from the fund is 5.25–5.5%.
• The underlying funds will allow about 30% leverage, which is conservative and falls in the category known as “core” real estate.
• The fund’s objective is low volatility but also low correlation to the market, which means that it will further reduce the volatility of your total portfolio.
• The target global exposure is 80% U.S., 20% non-U.S.
• The target private exposure is 70% private, 30% public real estate.
• The target equity exposure is 83% equity (meaning ownership of real estate), 10% debt (meaning lending to owners of real estate) and 7% preferred, which is a class in between equity and debt with characteristics of each.
• The fund’s inception was December 2011. Our clients will be placed in only the institutional class shares.
• The VCMIX net asset value is $83 million, but the value of the underlying funds is $37 billion comprising 565 properties. The fund owns a piece of the total invested in these real estate projects around the world.