The Cityfund is a real estate investment product that was created by the Compound team to provide targeted exposure to the world’s top markets. These real estate funds invest in residential real estate in a single market, providing a “pure-play” investment strategy.
We designed the Cityfund based on the transformation we have seen in the equities market from actively managed mutual funds to passively managed ETFs. We believe that this migration in investment strategy will soon take hold in the real estate space. Compound is at the forefront, creating real estate investment products which offer the same advantages that ETFs do in the equities space.
The core components of a Cityfund are:
- Thematic Investment Strategy: There are more than 6,000 ETFs listed today because investors want to be able to allocate capital to specific strategies, whether sector-based, size-based, geographically-based, or factor-based. Of course, investors still like to pick and invest in their favorite individual stocks, but the data has shown that stock-picking is not the optimal strategy for maximizing risk-adjusted return. We believe the same holds true in real estate: investors want to know where they are investing and which asset class they are investing in, but selecting specific assets through a private syndication or crowdfunding is overwhelming and confers the risk of individual asset selection. The Cityfund offers a diversified portfolio of assets that provides exposure to a specific market, allowing investors to allocate capital to various markets as they see fit. We call this “controlled diversification.”
- Liquidity and Transparency: We mention these as a pair because all the “transparency” in the world is useless without liquidity. Only a liquid market can provide insight into real-time valuation and give an investor the ability to act on the information provided. If we told you tomorrow’s lottery numbers but you weren’t able to buy a ticket, that information has no value. It’s the same with private real estate investments or funds that provide their own valuation; it’s meaningless information. This is why we want to offer true liquidity and transparency by listing Cityfunds on a national exchange like the NYSE.
- Low-Fee Passive Strategies: Investors have spoken. (Loud and clear.) They demand lower fees for all investment products. This is one of the major benefits of ETFs and the major reason why capital has migrated away from high-load mutual funds. We are starting to see this trend in the real estate space (and it’s why some of the larger private equity funds are now looking towards retail investment products). At Compound we believe that the majority of the returns generated from stabilized real estate is derived from the underlying market’s performance and not from the investor’s ability to source and select individual assets. This being the case, we believe that investors are heavily overpaying for actively managed real estate investment selection. Our Cityfunds have fees in-line with ETFs, as low as 25 basis points.
Compound intends to create Cityfunds in each of the major markets in the U.S. as well as abroad. We have our list of cities but would love to hear from our readers where you think we should create funds. Let us know!