An analysis of the composition and performance of the consolidated portfolios of Ativore's clients in the U.S. before and during the pandemic.
The recession caused by the COVID-19 pandemic shook the world economy, putting markets to the test and challenging the resilience of companies and their strategies. The robust U.S. real estate investment thesis broadly adopted and refined by Ativore since 2012 also felt some impacts, but the strategy focused on diversification and defensive assets allowed the portfolio to navigate the worst moment of volatility of the last decade without major scares and without any loss of capital to its investors.
In this article, we will detail the historical returns of our clients' consolidated portfolios, including this latest period of crisis, and the fundamental weight that diversification carries in the construction of defensive real estate portfolios.
Diversification
“Don't put all your eggs in one basket” is a saying already familiar to most investors, and we follow this premise when building and protecting wealth in dollars for more than 100 families. Diversification is valuable not only by allowing access to investments abroad, in hard currency, but in balancing portfolios across different real estate assets—always remembering that to diversify does not mean investing in random assets, but rather creating a portfolio that behaves safely regardless of the scenario presented.
For this reason, at Ativore, we seek real estate assets with a low degree of correlation among themselves, across different regions, classes, segments and operators within the spectrum of private real estate investments in the U.S. This diversification has proven very efficient when we analyze the portfolio's historical returns, especially in a moment of crisis, where we not only achieved positive performance in rental returns but were also able to observe the sale of some properties with capital gains. In addition, we were pleased to confirm that there was no loss of capital in the investments, which occurred heavily in the stock market.
Historical returns
We focus on secondary markets in broad expansion, yet still off the institutional radar, such as Atlanta, Dallas and Raleigh. This allows us to find assets with well-structured strategies of high potential for rent appreciation and subsequent sale, across the most diverse real estate classes, but always with local partners with deep experience in managing the invested class and who have skin in the game, seeking to maximize returns and ensure the alignment of interests between investors and asset operators.
We are present in 32 of the 50 U.S. states, diversifying the risks and potential of each local economy. In addition, it is important not to be dependent on just one asset class—such as hotels, with a high degree of seasonality, greater risk and consequent return—but rather to hold such assets in the portfolio with a counterbalance. Portfolio construction is focused on a balanced composition, allowing for a constant cash flow in dollars to investors, which reflects stable historical returns uncorrelated with capital markets.
Ativore began its journey in the U.S. real estate market in 2012 with an initial focus on single-family homes, which provided good quarterly cash flow to investors, especially considering that these are quite conservative, unleveraged assets.
From 2015, we also adopted the Private Equity Real Estate (PERE) strategy and, upon entering new asset classes beyond residential, we sought partnerships with local operators with great know-how of each class and region, for specialized management of each asset. With this, between 2015 and 2019 we achieved excellent and stable quarterly dividend returns tied to capital events such as refinancings and the opportunistic sale of some properties acquired in the early years, which had already appreciated enough to generate good capital gains for investors.
After all these years in the market, increasingly refining our methodology, we arrived in 2020 with a portfolio selected through proprietary technology tied to the great expertise of Ativore's Investment Committee. All this experience can be perceived in the fact that our portfolio showed no loss of capital, and showed dividend distribution even during the period of the COVID-19 pandemic. The market recession that some experts had already been fearing since 2019 ended up occurring due to a non-economic factor—a health factor—but with the adoption of a defensive strategy it was possible for the portfolio to navigate the worst moment of the crisis in a quite stable manner.
Conclusion
Our historical performance and, in particular, during the recession—especially when compared to other assets, such as stocks and venture capital—reassures us of the importance of balancing a real estate investment portfolio not only across classes, but also across various regions, segments and business partners, aiming to mitigate risks and generate good returns in dollars tied to a strategy of preserving our clients' wealth.
