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Customers want more exposure

Low correlations to financial assets and high liquidity continue to attract institutional funds and private wealth into real estate.

Morgan Stanley’s biggest calls

There are two ways for asset management businesses to grow: boost assets under management through strong investment performance, or attract more of customers’ funds for other reasons. Can Morgan Stanley real estate do the second as well as the first?

In Europe fully two-thirds of investable real estate is owned by non-property specialists, notably corporations and governments. Meanwhile, it would only take a 1% shift towards real estate of European institutional investors’ funds to channel €100 billion into the market. In the US, there are signs that pension funds and other large investors are also likely to increase their exposure to the asset class, even though returns in core real estate markets are trending down.

Sonny Kalsi, global co-head of real estate investing, says: "If you ask investors even today, many don’t yet look at real estate as a core asset class. They view it as an adjunct to their main activities, an alternative." But when institutional money starts to move, it can gather momentum fast. "Many investors still look at real estate as they looked at hedge funds five or six years ago," says Kalsi.

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