Germany’s largest public pension enters real estate secondaries with StepStone

BVK has forged a partnership with the private markets investment firm to diversify its property portfolio.

Bayerische Versorgungskammer, Germany’s largest public pension group, is entering the real estate secondaries market through a new partnership with StepStone Real Estate, affiliate title PERE has learned.

Munich-based BVK has formed a €300 million separate account with StepStone Real Estate to provide liquidity to investors and managers in private real estate vehicles. The partners will target secondaries investments in opportunistic, value-added and core-plus funds predominantly in the US and the Asia-Pacific region.

“While BVK has historically been a predominantly direct property investor, and continues to do so, our indirect real estate platform offers an additional and flexible route of gaining exposure to real estate,” Manuel Philippe Wormer, BVK’s head of global real estate investment management, explained to PERE. “In an efficient way, it offers further diversification and potential return enhancement by allowing us to access new markets, strategies and sectors.”

He added that BVK has been active in private equity secondaries since 2018 and has been studying the real estate secondaries market for many years.

The €300 million separate account will have a three-year investment period, with additional tranches of capital potentially to follow. The investment programme will be diversified by property sector, with a heavy focus on office and industrial and logistics vehicles.

Through the separate account, BVK, which has invested in global real estate for over 20 years, is 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,” Wormer explained. “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 percent allocated to Europe, including 44.3 percent to Germany and 24.7 percent to the rest of the region, as of 31 December 2020. Meanwhile, North America represented 18.5 percent, Asia 9.9 percent, Australia 1.3 percent and South America 1.2 percent of its property holdings.

Brendan McDonald, partner and chief operating officer for StepStone Real Estate, noted that pandemic-related disruption has increased dealflow in the space. “We think it is an interesting time to be investing in the real estate secondaries market,” he said. “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.”

Jeff Giller, head of StepStone Real Estate, added that with a lot of investor capital shifting to large-cap managers, smaller firms with less fundraising success can still access capital through the real estate secondaries market: “It’s a way for small- to mid-cap managers to raise liquidity in a world that is not as generous on the discretionary fundraising side.”

Jeff Giller StepStone
Giller: smaller firms with less fundraising success can still access capital through the real estate secondaries market

That said, BVK does not consider real estate secondaries to be a pandemic-only opportunity. “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,” Wormer said.

Indeed, assets under management for real estate secondaries funds grew significantly between December 2016 and June 2020, nearly tripling from $9.3 billion to $27 billion, according to data from Greenhill and Evercore.

“There’s been significant growth in the real estate secondaries market in terms of the volume of participants both on the sell-side and on the buy-side,” McDonald said. “But it’s still at a point of maturation that is years behind private equity secondaries. We view this as still a relatively nascent space and there’s a gap that we expect to continue to close over time, in terms of real estate secondary trading versus private equity.”

Frankfurt-based alternative investment fund manager Universal-Investment will provide fund administration services for the vehicle.