Pictet PropCast: Zsolt Kohalmi on alternatives, family office investments and the future of real estate

They discuss Pictet’s unique approach to alternatives, the shift in real estate investment strategies, and how cultural differences across Europe influence investment decisions. Zsolt offers insights into the evolving demand for private assets, the impact of macroeconomic trends, and the growing focus on sustainability in real estate.

Listen to the podcast on the player below:

Pictet’s Unique Approach to Alternatives

Pictet is a 220-year-old partnership that has evolved into one of Europe’s leading private wealth managers, with over €700 billion of assets under management. Zsolt, who is backed by a 30-year track record, explains that Pictet focuses on long-term investment strategies, particularly in the alternatives space. The firm manages private wealth and institutional investments, with alternatives a fast-growing area across both client types and approximately €50 billion allocated to it.

While he believes that alternatives are growing at a faster pace than traditional investments due to macro trends, Zsolt also acknowledges that real estate, which was once a favourite in the alternatives space, has faced challenges due to rising interest rates and shifting investor preferences. In recent years, private equity has outperformed real estate.

Real Estate’s Changing Role in Alternatives

Real estate, once the cornerstone of alternative investments, is seeing its role change. Zsolt notes that this shift is due to several factors: private equity valuations have stayed stable, infrastructure investments have shown positive performance, and rising interest rates have provided higher yields in fixed income markets. These factors have combined to cause many investors to reevaluate their real estate allocations, resulting in a decline in real estate fundraising.

However, Zsolt emphasizes that now is a good opportunity to invest in real estate, particularly given the lower entry point due to interest rates, and supply and demand imbalances. As capital supply in real estate shrinks. This offers a chance to find attractive, risk-adjusted investment opportunities, even in a market where short-term conditions have been challenging.

The Impact of High Rates and Market Cycles

Zsolt points out that many professionals in the real estate sector have only known low interest rates since the last financial crisis. This shift to a higher rate environment is unfamiliar to many in the industry, but it’s important to remember that rates were higher in previous decades, and real estate investments can still be viable even in a higher interest rate environment.

The challenges created by tighter monetary policy, which is now being eased by central banks across the world, have resulted in an attractive entry point and shaped an even better opportunity for long-term investors. Pictet, with its long-term investment outlook, is well-positioned to navigate these changes and seek out the right opportunities in the real estate space.

Cultural Differences and Market Dynamics in Europe

Zsolt reflects on his 24 years in London and six years in Geneva, discussing the cultural differences between working in Switzerland and the US. He highlights how Swiss culture is more methodical and relationship-driven compared to the fast-paced, transactional nature of American culture. This difference in approach influences how Pictet operates as a business, with a focus on long-term relationships and organic growth.

He also discusses how these cultural differences impact investment strategies across Europe. While Southern Europe, including countries like Spain and Italy, is seeing a stronger economic performance than in previous years, core markets like Germany and the UK are facing more challenges. Southern Europe, having avoided the heavy debt burdens of other European regions, now presents attractive investment opportunities.

Pictet’s Investment Strategies: Focus on Residential and Last Mile Logistics

Pictet’s real estate investment strategy focuses on the residential and logistics sectors. He notes that, historically, institutional investors allocated significant portions of their portfolios to offices and retail. However, over the past decade, these sectors have seen a decline in line with market trends, and Pictet focuses on last-mile logistics and luxury residential for sale, as well as build-to-rent (BTR) projects.

Zsolt is particularly bullish on residential and last-mile logistics, having been active in this space for decades. He sees supply and demand dynamics remaining favourable for investment in last-mile logistics across Europe. He also sees growth potential in luxury residential projects and BTR, driven by urbanization and changing demographics. He acknowledges the importance of a differentiated approach, given the number of investors focusing on these spaces. In the case of Pictet, one key aspect is the privileged long-term relationship it has with families across Europe that still hold a large part of the real estate.

Sustainability in Real Estate: Beyond ESG

Pictet has been committed to sustainability for over 25 years, focusing on the “greenification” of assets rather than simply adhering to the popular but often overused term “ESG.” Zsolt emphasises that sustainability is a critical factor in real estate investment, especially as governments and institutions increasingly demand greener, more energy-efficient buildings.

For Zsolt, and the wider Pictet Group, sustainability is not just a buzzword but a core part of investment strategies. For each direct real estate investment, Pictet assesses sustainability criteria. This is seen as an essential investment, as future buyers, particularly local pension funds and insurance companies, will likely prioritize sustainable, energy-efficient properties. Zsolt stresses that without these green upgrades, assets may struggle to find liquidity in the future, putting them at risk of becoming obsolete and stranded.