One effective way to understand the investment appetite of the world’s leading institutions is to track how the senior personnel of the managers that serve them are organizing themselves.
Paris-based AEW Europe on Tuesday offered up the latest clue when it hired Raphael Brault from local investment manager Acofi-Alms for the newly-created role of head of separate accounts and funds.
At a glance, AEW Europe, a real estate investment manager with some €18 billion of assets on its books, was simply replenishing its senior ranks. Brault’s arrival coincides with the retirement of Jean Lavielle, the firm’s deputy chief investment officer. Lavielle is retiring after more than 20 years’ service, freeing up responsibility for the firm’s fund management business which accounts for approximately 40 percent of its assets.
But speak to senior folk at AEW Europe and you’ll gather a more wide-reaching context that speaks as much to what the firm is hearing from the institutions it wants to serve, as it does to bolstering the experience on its investment and executive committees.
What PERE understands from the firm is that, today, there is a need to bring the separate account and fund management platforms closer together with a view to mirroring the style of investing some of the world’s largest institutions are keen to engage with.
Traditionally, the complexion of a separate accounts for AEW was a cost-efficient, consultancy-driven offering to institutions keen to build up their real estate portfolios. Generally speaking, an AEW separate account would charge lower fees than an AEW fund. But it would be open-ended, so income was lower, but lasted longer.
Today, AEW Europe has a different kind of separate account in store. This is partly where Brault’s investment banking and fund management skill set comes into play – during 12 years at Morgan Stanley, he worked both in commercial real estate structured finance and real estate investing. AEW Europe wants him to focus on bespoke and co-investment partnerships and these transcend the definition of conventional separate accounts, borrowing characteristics from the word of funds.
The bespoke partnerships typically start with a tangible investment proposition, an asset or a portfolio perhaps. They oftentimes involve the manager earning some kind of promote (in addition to a base fee), co-investing too, and, by inference, are structured to address a finite moment in time. They are not evergreen, advisory mandates. To the manager, they have much of the allure of funds.
And yet funds they are not. They are a hybrid iteration of what has come before but, if some of the largest transactions in the private real estate market during the past two years are anything to go by, they are likely to proliferate. AEW certainly thinks so, hence the move to create the joint head of separate accounts and funds role, and to hire an investment banker to fill it.
It is also worth noting that AEW's fund business is primarily active in core and core-plus strategies. In addition, the firm has a separate private equity real estate unit, which focuses on value-added and opportunistic investment. Integrating these two activities might conceivably be another organisational step to take as investor demands continue to evolve.
That said, managers blurring the lines on multiple fronts ironically might lead investors to question what the proposition is in the first place.
PS: this week PERE had something special to celebrate. In the 2013 State Street Institutional Press Awards, Asia Pacific, Jonathan Brasse won in the Journalist of the Year – Alternatives category. Michelle Phillips was highly commended as Best Newcomer. We're delighted.