Düsseldorf-based CAERUS Debt Investments has deployed half of a €200 million real estate debt mandate from German insurance company Volkswohl Bund.
The commercial real estate debt mandate is a relatively new asset class for the institutional investor, as it seeks ways in which to offset “ridiculously high” bond prices, Michael Morgenroth, chief executive of CAERUS, told PDI.
Volkswohl Bund approved the new asset class mandate in order to achieve better returns than on the bond side, he explained.
The insurer has reduced its exposure to the public fixed-income markets to allow for the investment, PDI understands. It is a move being replicated throughout the market, Morgenroth suggested. “That’s what a lot of institutional investors are doing at the moment which is understandable and probably correct,” he opined, explaining that asset price inflation was affecting primarily bonds, but also many other asset classes such as stocks and, in part, real estate.
Although margins have come down on real estate debt, Morgenroth said it was one of the most attractive asset classes at present, relative to others. “Bond prices are ridiculously high with the low interest [rate] policy of the ECB so it’s probably wise to look for investment alternatives,” he continued.
Morgenroth has experience of working on the institutional investor side, having sat on the board of Gothaer Asset Management for eight years. He was responsible for the real estate and infrastructure investments at German insurer Gothaer Versicherung. “[We] know the needs of institutional investors from first-hand experience. That has become more and more important, along with the regulatory environment, which is tightening and tightening”, he said.
Approved in the last quarter of 2014, the Volkswohl Bund managed account has invested in whole loans, first-ranking mortgages of up to 80 percent loan-to-value, in secondary cities, where banks can be more reluctant to lend, he said. “As an alternative finance partner, we are willing to take risks if we can measure it and price it,” he added.
The vehicle is primarily focused on Germany with possibility for investment in Luxembourg, the Benelux countries, Austria and Switzerland.
CAERUS was appointed investment advisor to two German institutional investors in the fourth quarter of 2014, with €350 million to invest in senior collateralised mortgage loans. In addition, the firm manages a €70 million fund for a third client, amounting to €420 million for investment in real estate debt, according to a statement in January.
The firm announced a first close of €70 million on a real estate debt fund with €300 million target in March 2014. Gothaer, with around €24 billion of assets under management, committed €50 million to the fund while Reichmuth & Co, a Swiss private bank, committed €20 million. The fund had a return target of 6 to 7 percent per annum, at the time of the announcement.
Volkswohl Bund was not available for comment at time of publication.