Private Equity Real Estate Fund Designed for Individual Investors
Legg Mason & Clarion Partners Launch Private Equity Real Estate Fund for Individual Investors
By Brad Fryer, Managing Director, Alternative Sales at Legg Mason
As part of efforts to build out our alternatives capabilities through our affiliates, Legg Mason has launched its first commercial real estate-focused fund designed for individual investors as well as small institutions and endowments.
The Clarion Partners Real Estate Income Fund (CPREIF) is managed by Clarion Partners, one of the largest U.S. pure-play real estate investment managers with over $51 billion in total assets under management (AUM).
By providing exposure to a portfolio of income-producing commercial real estate (CRE) and real estate-related securities at competitive fees and low investment minimums, we believe CPREIF truly democratizes private real estate investing.
A Yield-Starved World
Roughly 80% of CPREIF’s underlying investments are expected to be in private commercial real estate, both equity and debt positions. The remainder will be invested in publicly-traded real estate-related securities, cash and cash equivalents. Another affiliate, Western Asset Management, will manage the fixed-income sleeve, which will primarily target commercial and residential mortgage-backed securities.
We are living in a yield-starved world where everyone needs an income source. CPREIF aims to provide stable current income and attractive total returns. It will target high-quality, stabilized real estate assets which generate current income yet also have the potential for long-term capital appreciation.
CPREIF’s first investment is an $18 million loan to Buckingham Companies for the recapitalization of Aertson Midtown, a new property in the heart of Nashville’s Midtown/West End neighborhood. The property features 350 apartments, more than 37,000 square feet of retail space and a 180-room luxury hotel – the first in Nashville under the Kimpton flag. The property’s location near Vanderbilt University, four major hospitals and multiple office towers makes it a strategic site for this kind of mixed-use development.
The minimum investment in CPREIF is $2,500, making it accessible to a wide range of investors. There are no charges such as incentive or performance fees, making CPREIF one of the most competitively priced real estate products in the marketplace today. Clarion is able to leverage its institutional scale and robust investing platform without passing along excess costs. Please see the fund's prospectus for details on fees and expenses.
There are other products available to retail investors that are structured as non-traded real estate investment trusts (REITs) or interval funds, but CPREIF is one of the only funds that’s structured as a perpetually offered closed-end fund. This innovative structure seeks to minimize the pain points historically associated with accessing direct real estate products while maximizing the tax benefits associated with REITs.
While investors must take into account significant risks and liquidity considerations, CRE can be good for people who want investments that are not closely correlated with stocks or bonds to help with portfolio diversification. Moreover, CRE is expected to deliver strong returns, irrespective of entry time, without the volatility of stocks or bonds. Over the past 20 years, private real estate has delivered an annual income return of almost 6% on average, using the NCREIF Fund Index - Open End Diversified Core Equity (NFI-ODCE) as a benchmark (source: NFI-ODCE as of 2Q2019).
A natural extension of Clarion’s institutional business, CPREIF provides individuals with access to its expertise, scale and organizational stability. Established in 1982, Clarion has demonstrated long-term success in executing a wide range of real estate strategies, each leveraging the firm’s proprietary research capabilities.
Expanding global retail distribution, even beyond this real estate fund, is one of Legg Mason’s key strategic priorities. Legg Mason’s alternative products totaled $70 billion in AUM, or 9% of total assets, as of June 2019. This includes several alternative mutual funds, private investments and other vehicles.
The alternative assets managed by our affiliates have been geared toward institutional clients, but we’re focused on expanding the alternative investment offerings managed by our affiliates, particularly Clarion and EnTrust Global — which offers investment solutions through customized portfolios, co-investments, direct investments and established funds — and packaging the firm’s offerings into new vehicles for retail clients.
Brad Fryer is Managing Director, Alternative Sales at Legg Mason.
The Fund is newly organized, with a limited history of operations. An investment in the Fund involves a considerable amount of risk. The Fund is designed primarily for long-term investors, and an investment in the Fund should be considered illiquid. Shareholders may not be able to sell their shares in the Fund at all or at a favorable price. Fixed income securities involve interest rate, credit, inflation and reinvestment risks. As interest rates rise, the value of fixed income securities fall. High-yield bonds possess greater price volatility, illiquidity and possibility of default. The Fund’s investments are highly concentrated in real estate investments, and therefore will be subject to the risks typically associated with real estate, including but not limited to local, state, national or international economic conditions; including market disruptions caused by regional concerns, political upheaval, sovereign debt crises and other factors. Asset-backed, mortgage-backed or mortgage-related securities are subject to prepayment and extension risks. The Fund employs leverage, which increases the volatility of investment returns and subjects the Fund to magnified losses if an underlying fund’s investments decline in value. The Fund may use derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance.
The Fund should be viewed as a long-term investment, as it is inherently illiquid and suitable only for investors who can bear the risks associated with the limited liquidity of the Fund. Limited liquidity is provided to shareholders only through the Fund’s quarterly repurchase offers for no more than 5% of the Fund’s shares outstanding at net asset value. There is no guarantee these repurchases will occur as scheduled, or at all. Shares will not be listed on a public exchange, and no secondary market is expected to develop.
Past performance is no guarantee of future results. There is no guarantee the manager's investment approach will be successful. Diversification does not ensure a profit or protect against investment loss.
Any information, statement or opinion set forth herein is general in nature, is not directed to or based on the financial situation or needs of any particular investor, and does not constitute, and should not be construed as, investment advice, a forecast of future events, a guarantee of future results, or a recommendation with respect to any particular security or investment strategy or type of retirement account. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies should consult their financial professional.
The NCREIF Fund Index – Open End Diversified Core Equity includes open-end commingled funds pursuing a core investment strategy, primarily investing in private equity real estate. This is a quarterly, capitalization-weighted, gross of-fee, time-weighted return index with an inception date of December 31, 1977. An investor cannot invest directly in an index.
BEFORE INVESTING, CAREFULLY CONSIDER A FUND’S INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES. YOU CAN FIND THIS AND OTHER INFORMATION IN EACH PROSPECTUS, AND SUMMARY PROSPECTUS, IF AVAILABLE, AT WWW.LEGGMASON.COM. PLEASE READ THE PROSPECTUS CAREFULLY.
Brad Fryer, Managing Director, Alternative Sales at Legg Mason
About Legg Mason, Inc.
Guided by a mission of Investing to Improve Lives™, Legg Mason helps investors globally achieve better financial outcomes by expanding choice across investment strategies, vehicles and investor access through independent investment managers with diverse expertise in equity, fixed income, alternative and liquidity investments. Legg Mason’s assets under management are $791 billion as of Oct. 31, 2019. To learn more, visit our web site, our newsroom, or follow us on LinkedIn, Twitter, or Facebook.