Bailard Real Estate Fund Accepted into NCREIF’s NFI-ODCE Index
SAN FRANCISCO – May 25, 2021 – Bailard, Inc. announced today that the Bailard Real Estate Fund (the “Fund”) has been added to the National Council of Real Estate Investment Fiduciaries’ (NCREIF) Open-end Diversified Core Equity Index (NFI-ODCE) as of March 31, 2021. Bailard’s Fund joins as the NFI-ODCE’s 27th active fund.
The Fund’s Chief Accounting Officer, Dipika Shull, CPA, remarked that Bailard began benchmarking its Fund against NFI-ODCE in 2015 and, “it is only fair to become part of the body to which we compare ourselves. By joining the Index, we have cemented our Fund’s position as a core real estate investment option for a range of institutional and sophisticated investors.”
The Bailard Real Estate Fund was launched in 1990 and served as an innovative and early offering for institutional private equity real estate. As of March 31, 2021, the Fund had a gross market value exceeding $1.1 billion. The Bailard Real Estate Fund’s investment strategy focuses on value-enhancement acquisition opportunities while adhering to a diversified core portfolio construction approach, with the goal to deliver attractive risk-adjusted returns through varying market environments. The Fund seeks to outperform the NFI-ODCE (EW) Index – an objective that has been achieved for 25 of 26 quarters since Bailard began benchmarking against the Index.*
Preston Sargent, the Fund’s President and CEO, noted that broadening, deepening, and diversifying the Fund’s investor base has been an important initiative for the real estate team. Sargent said, “Joining the NFI-ODCE is an important recognition of Bailard’s intent to compete on a bigger stage.” Further, he added, “Going toe-to-toe with marquee private equity real estate fund sponsors is a privilege and will be an additional motivator to sharpen our skills, focus, and stay on our game.”
About the Bailard Real Estate Fund
The Fund is an actively-managed open-end diversified core equity real estate vehicle with a strategy to maintain and grow a portfolio of high-quality assets diversified across property types, major metro areas, and investment life cycles. As of March 31, 2021, the Fund’s Gross Asset Value was $1.1 billion, invested in 31 properties across 18 U.S. markets. An investor in the Bailard Real Estate Fund must be an “accredited investor” as defined in Regulation D and provide documentation verifying such status as requested by the Fund.
About the NFI-ODCE
The NFI-ODCE is a capitalization-weighted, gross of fee, time-weighted return index with an inception date of December 31, 1977. As of March 31, 2021, the NFI-ODCE consisted of 27 funds, totaling $212 billion of net real estate assets. Open-end funds are generally defined as infinite-life vehicles consisting of multiple investors who have the ability to enter or exit the fund on a periodic basis, subject to contribution and/or redemption requests, thereby providing a degree of potential investment liquidity. The term Diversified Core Equity style typically reflects lower risk investment strategies utilizing low leverage and generally represented by equity ownership positions in stable U.S. operating properties diversified across regions and property types. For more information on the Index, please visit https://www.ncreif.org/data-products/funds/.
* Important Disclosures
Bailard, Inc. (“Bailard”) is the investment and operating manager of the Bailard Real Estate Investment Trust, Inc. (the “Bailard Real Estate Fund” or the “Fund”). While the Bailard Real Estate Fund began benchmarking itself to the NFI-ODCE as of 3/31/2015, please note that the Fund was accepted into the Index as of 3/31/2021 after meeting the eligibility requirements for four consecutive quarters. For the period ending 3/31/2021, the Fund outperformed the Index 25 of 26 quarters on both a gross and net basis. The Fund’s full performance history is available upon request.
The underlying performance results of the Fund are calculated using National Council of Real Estate Investment Fiduciaries’ (NCREIF) methodology and reflect the impact of leverage, interest, and dividend income from short-term cash investments and publicly-traded real estate investments, as applicable. Capital expenditures, tenant improvements, and lease commissions are capitalized and included in the cost of the property; are not amortized; and are reconciled through the valuation process and reflected in the appreciation return component. The performance results do not reflect Fund-level expenses, such as audit, tax, legal, operating management fee, and accounting expenses. The Fund’s income return is not the distributed income to the investor, and the Income Return is presented gross-of-fee and before Fund expenses. The NCREIF gross return methodology is as follows: the total gross return is equal to net investment income plus appreciation divided by weighted average equity. With respect to income and appreciation, the NCREIF methodology for net income return is equal to net investment income divided by weighted average equity, and net appreciation return is equal to appreciation divided by weighted average equity. Performance results are calculated on an asset-weighted average basis using beginning of period values adjusted for time-weighted external cash flows. All properties have been appraised quarterly since the third quarter of 2009. The Fund’s Board of Directors determines the value of properties based on input from independent appraisers and all levels of the Fund management. Securities, derivatives, and cash and cash-equivalent investments held by the properties and Fund are marked to market on each valuation date. The Fund’s Inception Date is April 20, 1990. The NCREIF Fund Index – Open End Diversified Core Equity (NFI-ODCE) is a fund-level, time weighted return index reporting the returns of various open-end commingled funds pursuing a core private real estate investment strategy and qualifying for inclusion in the NFI-ODCE based upon certain pre-defined index policy inclusion characteristics. Historical data is available from 1978. Like the Fund, the NFI-ODCE returns reflect leverage and the impact of cash holdings and joint ventures (i.e., returns reflect each contributing fund’s actual asset ownership positions and financing strategy). The use of leverage varies among the funds included in the NFI-ODCE. The NFI-ODCE is unmanaged and uninvestable. Past performance is no indication of future results. All investments have the risk of loss.
Bailard receives annual fees from the Fund, which are based on the Net Asset Value. The Fund invests primarily in real estate and, as a result, an investment in the Fund entails significant risks that are customarily associated with the development and ownership of income-producing real estate, including illiquidity, changes in supply and demand, and inexact valuation. The Fund’s shares fluctuate in value and may be illiquid due to a lack of redemption, the lack of a secondary market and restrictions on transfer. Fees and expenses may offset the return on the investment. The Fund may be leveraged. Projections are based on assumptions that Bailard believes are reasonable under the circumstances, they are subject to uncertainties, changes (e.g., changes in public health, economic, operational, political, legal, tax, and other circumstances), and other risks including, but not limited to, future operating results including rents, occupancy, and other property cash flows, and other expenses. Investors may lose all or a substantial portion of their investment. For a more thorough discussion of the fees and the risks involved in making an investment in the Fund, please refer to its Offering Memorandum.
About Bailard, Inc.
With 50 years of experience, Bailard proudly serves as a trusted partner focused on achieving long-term results aligned with client goals. An independent firm since its founding in 1969, Bailard stands committed to its values and, most importantly, its clients. With $5 billion AUM as of March 31, 2021, Bailard’s high-touch client service and proven track record are grounded in the firm’s core values of accountability, compassion, courage, excellence, fairness, and independence.
The Origins of Socially Responsible and Sustainable Investing
One of the fastest growing areas in investing today is socially responsible investing (SRI) and environmental, social, and governance (ESG) investing. The growth in SRI and ESG has not just been driven by the heightened desire of individual investors to align social and environmental values with portfolios, but also by the realization that ESG metrics can be a valuable gauge of risk and can drive investment performance. It may be surprising to some that SRI has been around for decades, and ESG arrived in the mid-2000s. Inside this research paper published in The Journal of Impact and ESG Investing, “From SRI to ESG: The Origins of Socially Responsible and Sustainable Investing,” Bailard’s own Blaine Townsend, CIMC®, CIMA®, explores the history of SRI and ESG investing.
Inside, you’ll learn:
- How the history of SRI and ESG investing has roots not only faith-based investing but also in the civil rights, antiwar, and environmental movements of the 1960s and 1970s;
- How investment risks posed by climate change and poor corporate governance were a large catalyst to ESG investing;
- How ESG data is now much more widely available than even a decade ago, making ESG investing much more viable; and
- The impact of SRI and ESG on investment returns.
“One word Benjamin: Semiconductors”
A well-rounded look at the state of the semiconductor industry as a component of technology investing from Chris Moshy, Senior Vice President of Equity Research.
September 30, 2022
If the classic 1967 film “The Graduate” was re-made today, the sage advice Dustin Hoffman’s character Benjamin Braddock received from a family friend would be undoubtedly updated to: “I’ve got one word for you, Benjamin: semiconductors.”
While plastics1 are no doubt ubiquitous in today’s economy, the world could not function without semiconductors: small silicon-etched2 integrated circuits found in everything from laptops and kitchen appliances to smartphones and self-driving vehicles. Undeniably, and for better or worse, innovation, product cycles, and device proliferation of all kinds are inexorably driving semiconductors deeper into the infrastructure of our daily life.
Think about the feature set of today’s vehicles—lane departure warning, blind spot detection, GPS mapping, adaptive cruise control, and performance-tuned engines—all semiconductor enabled. Electric vehicles are really supercharged computers with microchip-laden battery systems and software on wheels. The smartphone you may be using to read this operates primarily on semiconductors with its bright OLED3 foldable screen, powerful digital camera, a super speedy and cool-running CPU, plenty of fast-swapping memory to manage and store apps, and is web-connected via a cell signal using a 5G millimeter-wave chipset. Yikes! Where’s my rotary phone?
The comprehensive nature of the semiconductor industry underscores why we strongly believe the group is an integral component of a technology investment strategy. It is also an industry defined by rapid innovation, brutal competition, significant capital investments, and, as the current environment reminds us, one subject to substantial cyclicality.
By many measures the current business cycle for semiconductors has peaked and the retrenchment in stock prices has been painful. Over the past 12 months ending September 2022, the Philadelphia Semiconductor Index (SOX), a broad industry performance measure, is down 29.3% versus the S&P 500 Index, down 17.7%. On a ten-year basis, however, the SOX Index gained 528% vs the S&P500 at 153%; and a 20-year comparison shows the SOX Index up 682% vs S&P500 less than half that at 304%.4
The semiconductor industry is still expected to grow mid-single digits this year, and current estimates for 2023 reflect low-single digit declines in global semiconductor revenues. This is down from the 26% growth enjoyed in 2021.5 After several years of above-trend demand, particularly in consumer durables during the pandemic, many end markets are now faced with excess customer inventories and buyers retracing their steps. PCs and smartphones sales have contracted meaningfully in 2022, as have other consumer products such as appliances, leisure equipment, and entertainment hardware. Even in areas showing good demand, think of the auto sector, component order rates are slowing as inventories fill up and the outlook for the global economy darkens.
Whether this downturn in the semiconductor sector will be short and shallow or more protracted is actively analyzed in the markets. Our current view is it will be early- to mid-2023 before visibility improves and industry recovery begins, but stock prices often anticipate a business upturn by a quarter or more. The depth and breadth of an economic recession of course will impact that forecast.
There are other issues at work that impact both the current business cycle and the long-term supply challenges. Some may be surprised to learn that many of the most recognizable consumer products in the world are dependent on very few regional suppliers. This includes the most advanced semiconductors and sophisticated electronic components that are at the core of flagship products. As Apple Inc. states in its annual 10k filing, “Substantially all the Company’s hardware products are manufactured by outsourcing partners that are located primarily in Asia… A significant concentration of this manufacturing is currently performed by a small number of outsourcing partners often in single locations.” This concentrated supplier risk is not limited to Apple; many leading semiconductor and consumer device companies6 rely on the same narrow supplier channels for product manufacturing and assembly.
Recent supply chain disruptions, capricious government closures of regional manufacturing hubs, and China’s increasingly menacing posture towards Taiwan has brought the issue front and center for business executives and members of Congress alike. Interestingly, Eastern Europe’s unrest and Western Europe’s unpredictable energy supply and expensive workforce makes the U.S. the location of choice for future semiconductor capacity additions. Of course, the effort will greatly benefit from the CHIPS Act, a bill signed into law this past summer that provides grants and tax breaks to companies building semiconductor manufacturing plants in the U.S. The CHIPS Act helps a select set of companies finance capacity expansions to build semiconductor facilities for their own operations or to provide outsourced fabrication services for others.
The CHIPS Act does limit companies from using funds to pay dividends or for share repurchases. Yet, it also improves the flexibility for companies to make capacity investments while maintaining capital return programs for shareholders—even during an industry downturn. In today’s environment, semiconductor companies are aware of the industry’s cyclicality and have learned to budget capacity growth based on demand forecasts and cost targets rather than the availability of capital. Understandably, with so much new investment capital and incentives entering the industry in coming years, it will be important to monitor the impact on industry supply discipline including the growth of outsourced capacity in the U.S.
Lastly, the rise of export restrictions on key technologies to China is a growing concern for companies and investors. Chinese firms are among the largest buyers of U.S. technology, including semiconductors, components, and fabrication equipment. Currently, most U.S. technology sales to China are considered “lagging” or “legacy” products and equipment, but still amount to 20%+ of sales for many companies, while sales of leading-edge products that tend to be restricted are in the low single digits. Without better policies around technology transfer, continued export restrictions will limit the long-run potential of the region’s growth for U.S. companies.
This year has not been easy for technology investors and, once again, the semiconductor industry has proven its cyclicality. While we expect some pressure on business fundamentals through year-end, we are on the offensive for investments, including in the semiconductor ecosystem. It’s an industry in which the most innovative and competitive companies are generally rewarded by successively higher revenues, profits, and stock prices with each business cycle. The industry is well-capitalized, and the CHIPS Act ensures continued growth investments in its manufacturing base. Market leaders in the technology industry can shift surprisingly quickly from cycle to cycle so investing in the sector requires attention (and patience), but the fascinating and rewarding opportunities justify the effort.
1 The original piece of advice to Benjamin Braddock!
2 Germanium substrate is also common, and the latest generation chip designs incorporate gallium arsenide substrates
3 Organic light emitting diode
4 Philadelphia Semiconductor Index; SPDR 500 ETF; Bloomberg LP
5 Gartner Forecasts Worldwide Semiconductor Revenue Growth
6 Qualcomm, Inc., AMD Corp., Nvidia Corp., Microsoft, Inc. and many other operate under similar “fab-less” manufacturing models