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COMMENT: Time, gentlemen

The senior folk at two of Europe’s oldest property fund managers are evaluating sale options. The key task facing them is to divest without eroding the long-term value of their firms.

The stories behind the for-sale signs erected over the past few days by Pradera and Catalyst Capital, two of Europe’s older property fund managers, are different.

But they share common ground in that they have recognized that the UK and continental European markets they invest in rapidly have become attractive to huge pools of institutional capital. Accordingly, their senior men have decided to explore strategic options for themselves and their firms as their careers enter their autumn years.

Messrs Paul Whight and Colin Campbell, the senior stakeholders of Pradera, and Catalyst's founding partner Julian Newiss (alongside some or all of his fellow partners) are deciding how soon and in what guise they might call time on their respective investments. Pradera has hired Berkshire Capital for advice on this; Catalyst is working with Ernst & Young.

Things are likely to be different for each firm. These two long-standing, London-headquartered businesses are at different stages of organisation and, as such, offer different propositions for prospective suitors, particularly when the issue of succession is scrutinized.

With Pradera there is a clean line of sight in terms of leadership. Whight and Campbell, both in their sixties, planted the seeds of their succession two years ago when they announced ex-JER Partners director James Bury as chief executive officer and managing directors Roberto Limetti and Neil Varnham as his deputies to take over day-to-day operations.

Even so, determining how to exit from their stakes, or at the least enable a strategic capital injection so they no longer need to commit much further capital themselves, will be an important aspect to balance with making sure the business maintains its value without the expertise that they offer. However, with Bury and his colleagues in place, some good groundwork has been done. Pradera's recent forming of new partnerships with groups like Tristan Capital Partners, AEW Europe and Brockton Capital reflect this.

At Catalyst, Newiss, and the firm’s five other partners (half of whom are approaching or beyond 60 years) have not yet openly articulated who will inherit the leadership once they have stepped aside. The firm is in capital raising for its second European opportunity fund. Almost certainly, prospective investors would want to hear about its leadership plans if they are to commit to the vehicle. Certainly investors considering investment at the platform level would. 

As with Pradera, a balancing act is required for Catalyst. If the senior partners commit their own capital to the business, to the extent they previously did, it would mean committing to another lock-in period, and taking the risk that would come with it. And yet any new investor in the business is likely to want them to remain, at least until they have mapped, and probably demonstrated, a succession plan of their own. It is worth pointing out that Catalyst does have younger blood coming through the ranks. Note the progress of Paris-based partner Fabrice de Clermont-Tonnerre, for example.

The balance can be struck, as was demonstrated by Europa Capital in 2010, when it successfully enlisted strategic support from Rockefeller Group, the real estate business of Japan’s Mitsubishi. In that case, the principals remained in situ but the co-investment they were expected to make was supported by their new sponsor and the firm managed a successful fundraising shortly after.

It is the perennial challenge for any investment firm where the expertise and capital are tied up with a small number of senior stakeholders. Those stakeholders are right to examine their options at a time when improving market conditions in Europe will have improved their allure. But whether they can successfully convince new investors to buy in without their personal expertise and capital still in place in is another matter. 

After long careers full of challenges, calling time for these gentlemen is undoubtedly one of the hardest challenges of them all.