Koda Capital takes an opportunistic approach to property and this has allowed the wealth manager to stay away from problematic sectors
Koda Capital’s approach to real estate investing is unlike that of a superannuation fund. The wealth management firm takes a more opportunistic approach to this asset class, buy and selling assets as it sees dislocations in the market.
“The typical super fund allocates to open-ended funds, or invest directly if you are a larger fund. They’re mainly buy-and-hold strategies in office, retail and industrial,” Norman Zhang, Chief Investment Officer of Koda Capital, says in an interview with [i3] Insights.
“In wealth, because we’re a bit smaller in terms of allocations, we get to be more opportunistic when it comes to the asset class.
“With property being a cyclical asset class, we like to treat it as every other cyclical asset class, one that you can buy and sell versus the traditional model where it’s buy and hold,” he says.
With property being a cyclical asset class, we like to treat it as every other cyclical asset class, one that you can buy and sell versus the traditional model where it's buy and hold
Zhang says that apart from being a cyclical asset class, the valuation/pricing mechanism in property markets is imprecise, providing trading opportunities for active investors. These opportunities are further amplified by the fact that property assets have a relatively high level of substitution.
“If you look at an office building in the middle of the city in Melbourne or Sydney, then one block is not too different from one in another block. Yes, the amenities might be slightly different, but typically I can pick and choose as a tenant.
“So where there is substitutability in assets, and where it is cyclical, there is a potential pricing mismatch. We can be more tactical and opportunistic here.
This ability to be tactical has played out well for Koda Capital as it had no exposure to some of the more problematic parts of the market.
We weren't exposed to any of the office market write downs that we've seen. We had zero exposure in our Core reference portfolio. All our exposure has been opportunistic
“We weren’t exposed to any of the office market write downs that we’ve seen. We had zero exposure in our Core reference portfolio. All our exposure has been opportunistic.
“And that has actually been on the property-backed credit because that’s where the opportunities lay in the commercial property market at this point in time.”
Relative to REITs, he prefers to take unlisted exposures through active managers. That said, he notes that REITs are useful when there is a temporary dynamic asset allocation opportunity, and in those circumstances highly liquid, passive exposure can do the job well.
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[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe.