Institutional Investor's Alpha Magazine - December 2007/January 2008 - (Page 33)

regulatory requirements involved in real estate investing. But with hedge fund ﬁrms casting ever wider investment nets, it was only a matter of time before they turned their gaze to real estate, a $17 trillion global market, according to San Francisco–based consulting ﬁrm Callan Associates. “As hedge funds look for more and more sources of alpha, they’re looking for pockets of opportunity,” says Victor Leverett, director of alternative investments at Russell Investments in Tacoma, Washington. “Hedge fund managers are always at the forefront of ﬁnding areas of market inefﬁciency.” In the midst of the current credit crunch, hedge funds also have some advantages over traditional real estate investors. Callan real estate consultant Sarah Snyder notes that hedge funds have greater access to deep pools of capital that are subject to less regulatory interference than real estate opportunity funds — closed-end commingled funds whose managers make direct real estate investments using opportunistic strategies — or real estate investment trusts. For Rizk, hedge funds’ movement into real estate was an obvious step. “Not to have real estate exposure doesn’t make any sense because it’s one of the largest asset classes out there,” he says. Alpha Senior Writer Frances Denmark recently met with Rizk at D.E. Shaw’s New York headquarters to discuss real estate investing and how it complements the ﬁrm’s hedge fund business. How are the troubles in the subprime mortgage market affecting real estate investing? The subprime situation and the decline in the global real estate markets are related, yet two separate and complex issues. Domestically, those with the ability to enter into long-term partnerships and provide ﬂexible capital solutions will be well positioned in the current real estate market. For instance, we believe there are opportunities to invest in residential real estate communities at attractive prices and to hold those assets until mortgage market conditions improve and the supply overhang is absorbed. In November we acquired several thousand homes in Florida as part of a joint venture with Metro Development Group. We’re also providing debt and mezzanine ﬁnancing to developers — a role traditionally fulﬁlled by commercial and investment banks. What problems do you foresee in U.S. real estate? There is a level of uncertainty. As ﬁrms such as Citigroup and Merrill Lynch take big write-downs due to the subprime mess, they will need less ofﬁce space. Then com- 2:08 PM http://KNIGHT.COM

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - December 2007/January 2008

Institutional Investor's Alpha Magazine - December 2007/January 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Liberal Returns The Good Guy: Inner-city MVP Cover Story: Marathon Men Interview: Rizk Management Profile: Living on Hostile Ground Profile: Buy and Hold In Theory: The Fallacy of Portable Alpha Strategies: Changing Course Alpha Bytes: Behind the Scenes Unhedged: Commentary: An Activist Alternative

Institutional Investor's Alpha Magazine - December 2007/January 2008

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