Fran莽ois Trausch, CEO of PIMCO Prime Real Estate, offered attendees at the in Copenhagen a unique perspective on navigating the current market climate, highlighting the often-overlooked role of behavioural science in investment decision-making.
In conversation with Piet Eichholtz, professor of real estate finance at Maastricht University, Trausch began by agreeing with economic sentiment, acknowledging that tariffs are likely to lead to lower growth, more inflation and higher rates in the US. He said a 50/50 probability of recession is something he agreed with.
He dismissed the likelihood of stagflation, saying that 鈥漜entral banks hate stagflation, so [they will do] everything they can to stop stagflation鈥�. This uncertainty is 鈥渘ot conducive to any fast decisions鈥�, he added.
Trausch also addressed the challenge of making real estate an 鈥渁ttractive asset class鈥� again, especially given that 鈥渇ixed income is back in the game鈥�, and now offering appealing returns, with investment-grade bonds yielding around 6.5%.
He said that broad sector allocations are no longer sufficient, and instead investors must find 鈥渢he very good asset鈥�.
He believes that the next phase of recovery would be 鈥渄efinitely going to be income-led鈥�, with 鈥渃ore-plus鈥� emerging as the 鈥渘ew core鈥� to achieve attractive yields closer to 10%.
This shift doesn鈥檛 necessarily mean taking on more risk, but rather showing the 鈥渁lpha you bring to an asset鈥�, implying active asset management rather than relying solely on market movements.
Responding to Eichholtz鈥檚 question on the challenges for global investors posed by the shift towards more operational and alternative real estate assets, Trausch said investors could rely on operating platforms managed by specialists to handle operational risk, rather than doing it themselves. He pointed to PIMCO鈥檚 approach of onboarding specialists in retail, logistics, student housing, who 鈥渄irect the operating partner in the right direction鈥� globally.
A central theme of the conversation revolved around the integration of behavioural science into PIMCO鈥檚 investment process, a learning derived from exposure to other asset classes like fixed income. Trausch highlighted the importance of 鈥渞eliable investment processes鈥� built on macro and asset-level analysis, but pointed to behavioural science as an 鈥渙verlooked鈥� area for mitigating 鈥渃ognitive biases鈥�.
He talked about specific measures implemented to combat biases, particularly within the investment committee, and advocated for 鈥減re-mortems鈥�, a process performed in advance of transactions to assess what could go wrong after an investment has been made. This technique, he said, is more effective than traditional strengths-and-weaknesses analyses, forcing a deeper exploration of potential failures.
He detailed several pervasive biases that investors should be aware of, including the anchoring bias, where one relies too heavily on the first piece of information received.
Another was 鈥榬ecency bias鈥�, which involves putting more weight on recent events or information. He also mentioned 鈥榟alo and horns鈥� biases, where initial positive or negative impressions unduly influence subsequent interpretations and finally, 鈥榟erding bias鈥�, a significant issue in real estate often fueled by the 鈥渇ear of missing out鈥�.
While acknowledging that 鈥測ou cannot change biases鈥� as they are 鈥渉uman nature鈥�, Trausch said it was important for investors to become aware of them when making decisions.
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