Grosvenor escalates indirect investing plans  

The property company of the Duke of Westminster is aiming to increase its indirect allocation to nearly a third of its total investments in five years.

Grosvenor, the Duke of Westminster’s property business, has doubled the total equity investment target for its indirect business to £1.5 billion ($1.82 billion; €1.69 billion), PERE can reveal. The London-based firm is planning to reach the target over the coming five years.

Grosvenor Diversified Property Investments, the Grosvenor business responsible for its indirect investments, currently has approximately £700 million committed to 19 investments via 13 different relationships, spanning markets including Australia, Brazil, Poland and the US.

The business, which was set up in 2012, commits balance sheet capital to ventures and funds focused in areas uncorrelated to the firm’s main direct holdings in its now core markets of the UK and North America. Given that it backs specialist third-party managers with its investments, the platform is considered similar to an institutional investor.

Grosvenor’s goal to double the size of the indirect business’s total investments is part of a wider streamlining effort that includes ceasing direct investing operations in Asia and Continental Europe and embarking on a series of exits from these markets.

Last year, for example, the firm significantly exited from Japan with the sale of properties to construction firm Kajima Corporation, including a mixed-use office and retail property in Tokyo in a deal valued at about $119 million. Further exits are expected in Shenzhen and Hong Kong in China. Head of Asia, Benjamin Cha, left the firm in July last year.

Currently GDPI’s investments account for about 6 percent of Grosvenor’s total assets under management, which are valued at approximately £11 billion. GDPI’s chief executive Chris Taite told PERE, however, the strategic shift is expected to see what was a 10 percent allocation target rise to almost one-third of total assets once the deployment plan is executed. “That’s our push for the next five years,” he said.

Taite, whose team also includes Andy Yates as chief investment officer and Tim Budden as chief financial officer, said the unit’s current outlays are 80 percent in joint ventures and 20 percent in funds. But the expansion plans would likely see these proportions shift, with funds expected to constitute as much as 33 percent of the total equity committed.

In terms of run rate, Taite said he expected GDPI to commit between £200 million and £300 million a year to new investments. Combined with about £100 million in exits per year, he expects the five-year equity commitment target to be achievable, but accepts adjustments in investment approach could be required to get there.

“We will probably do more funds,” Taite said. “Maybe up to one-third. But actively driven business plans will likely constitute the most.” In terms of how many more manager partners GDPI is seeking, Taite said: “We’re not looking for more than 15-20 overall.”

Average ticket sizes to outlays have increased over time. “They were £15 million to £30 million when we started,” Taite said. “Now, they’re £30 million to £100 million. They’ve nudged above and dropped below on occasion.”

Taite: fund commitments are likely to increase as part of a plan to commit up to £300 million per year.

Among Grosvenor’s manager partners are: Bridge Investment Group and MedProperties in the US, Gateway Capital in Australia, REINO-IO in Poland and VBI Real Estate in Brazil. Taite said re-up commitments would happen in cases where the firm had a positive prior experience. “The challenging part is always the first deal,” he said.

To date, GDPI has generated an equity multiple of 1.7x on investments exited, making it the best performing part of Grosvenor. This strong performance has led Grosvenor to lean more heavily on the unit to complement its lower yielding direct businesses.

“The more mature markets of the UK and the US are lower risk and lower returning,” Taite said. “So we need to find outperformance.” Taite said the larger remit given to his unit is testament to its success: “We’ve been gradually proving the model every year since 2013.”