Manulife Investment Management is in the middle of a transition. Over the past two years, the investment management platform of Canadian insurance company Manulife Financial has been overhauling its real estate business through senior hires, additional regional leadership roles and an expansion of its investment capabilities. A core objective of this transformation is for Manulife IM to expand its third-party management capabilities with a view to raising – and investing – more external capital, alongside its parent’s balance sheet.
The Toronto-headquartered firm has set ambitious targets for its global real estate growth strategy. These include reaching annual capital deployment of close to $5 billion globally, investing across the risk-return spectrum; and making Asia-Pacific a key investment driver, accounting for 50 percent of the platform’s overall growth.
“We are building our business for all types of clients, and for all types of risk appetites,” Marc Feliciano, the firm’s global head of real estate, private markets, tells PERE in an interview following the final senior hires.
Rationale for change
For decades, Manulife IM has been investing in alternative assets as part of its private markets capabilities. As of September 30, 2023, the firm’s real assets under management totaled $39.3 billion. Its real estate portfolio included predominantly core and core-plus strategies across the US, Canada and Asia-Pacific, comprising more than 74.7 million square feet of office, industrial, retail and multifamily assets.
Manulife Financial is ranked 69th on the PERE 100 ranking of real estate’s largest investors, with $8.4 billion allocated to the asset class.
But until recently, nearly all of Manulife IM’s investments were made on behalf of its parent company through the insurer’s warrantied capital, or general account. “The general account team on the insurance side is the team that helped hyperscale our growth, particularly in Asia-Pacific, and set a very important foundation and footprint across all major developed markets such as Singapore, Japan, Hong Kong, Vietnam and the Philippines,” says Feliciano.
Feliciano’s hire in February 2022 has served as the “catalyst for Manulife IM to build and hyperscale its business, and become a true global investment manager,” according to Maggie Coleman, the firm’s chief investment officer for North America – one of last year’s round of senior hires. Feliciano took over the global leadership role after serving as the chief investment officer of real estate for the Americas at Frankfurt-headquartered asset manager DWS.
Since he joined, Feliciano says the firm has focused on organization design and building the leadership team. That includes expanding the firm’s geographical footprint by opening up regional offices in Los Angeles, Atlanta and Vancouver, among others.
New roles were also created. In July 2023, Coleman, who was previously managing partner for private capital advisory at Toronto-based firm Sera Global, was appointed to help expand the North American business. Victor Calanog, formerly the head of commercial real estate economics at rating agency Moody’s Analytics, joined as global co-head of research and strategy. Jessica Harrison, who was a senior vice-president and portfolio manager at asset management giant Pimco, became the head of US acquisitions.
Months later, Kenny Lam returned to Manulife IM to lead third-party management activities in Asia-Pacific. Lam was the firm’s head of real estate investments in the region from 2017 to 2022, then went to work at Hong Kong-based Link Real Estate Investment Trust as the CIO for strategic investments.
“We have grown our workforce by roughly 25 percent overall globally. And if you just focus on the senior leadership team, the growth is probably close to 40 percent,” Feliciano says. “What I would call phase two of our business plan is to begin to grow and expand our investment capabilities beyond the existing investment capabilities that have largely been put in play by the prior team, but also through the power of the parent and general account.”
Critically, this plan involves moving beyond balance sheet investing, and raising capital from a wide suite of institutional investors. In doing so, the firm joins the ranks of a growing number of insurance businesses expanding into third-party management.
Generali Real Estate, the real estate asset management arm of the Italian insurer Generali Group, started emphasizing third-party management in 2017 and now has 12 pan-European funds in its product catalogue that are open to third-party investors, according to its marketing. Meanwhile, Allianz Real Estate, the property business of the Munich-based insurer, launched a real estate debt fund for third-party investors in 2019 and has since raised additional external capital for other strategies. In 2023, Allianz Real Estate was rebranded as Pimco Prime Real Estate following the merger of the two groups in 2020.
Explaining the motivation for Manulife IM’s move into third-party management, Feliciano says: “The repricing of assets to the challenging capital market conditions today present great opportunities, both for the balance sheet as well as an investment management business focused on real estate that is looking to expand existing clients.”
The firm intends to invest capital on behalf of sovereign wealth funds, public pension plans and other types of institutional investors to take advantage of both near- and long-term opportunities arising from secular trends. While Manulife IM has so far focused on core investing, the firm’s leaders say non-core strategies will be in the cards, too.
“The ability for us to look at opportunities across the risk spectrum and through a thematic lens is going to attract a variety of different capital sources and strategic investment partners to drive scale and meet our growth objectives,” Coleman notes.
Mission Manulife
The Canadian insurer has identified three key targets to substantiate its real estate growth aspirations
1. Reach annual capital deployment of approximately $5 billion a year
2. Invest across the risk-return spectrum of strategies
3. Make Asia account for half the platform’s growth
Capital raising strategy
Manulife IM manages a range of vehicle types globally, including two core funds, a Canada-focused real estate mortgage fund and several separate accounts. The general account in Asia-Pacific has capital commitments to real estate totaling around $4 billion.
According to the firm’s leaders, this existing asset base and prior track record provide a competitive advantage for Manulife IM as it ramps up its third-party fundraising efforts. “One could argue that this is a new business. But it is one without a lot of risk because of the experience of all the individuals, as well as the balance sheet,” Feliciano says.
At the same time, a nascent third-party investment management platform trying to raise capital in a challenging market environment will have hurdles to clear. Most obviously, interest rate hikes have impacted deal activity: broker CBRE estimated US commercial real estate investment volume fell by 54 percent year-on-year in Q3 2023 to $82 billion.
Then there is the capital: among investor types, institutional investors significantly slowed their buying activity and were net sellers during the quarter. According to CBRE, institutions invested $13.4 billion in US commercial real estate in Q3, 66 percent less than a year prior. The resulting fundraising pinch is impacting some managers more than others: in PERE’s 2023 US roundtable, participants noted how investors want to commit to experienced managers that can navigate challenging cycles.
“The biggest challenge would be not having a track record investing third-party capital through market cycles,” adds Jeff Giller, partner and head of real estate at US manager StepStone Real Estate. “Moreover, investors want to know that their managers have a strong client-oriented and fiduciary culture and best-in-class operations, administration and reporting processes in place. It’s the chicken-and-egg problem that all new managers face.”
Matt Hershey, partner at capital advisory firm Hodes Weill & Associates, believes prospective investors should take comfort from Manulife IM’s long-standing track record investing parent capital. “They’ve had the balance sheet activity for years,” he says. “To the extent this is an extension of that, it should be considered an advantage.”
However, he believes the naturally conservative nature of insurance businesses could mean a cultural adjustment is necessary to successfully deliver higher risk and return strategies, too. “Investors have to buy in and believe they have what it takes to be aggressive, creative and giving them what they expect third-party managers of various strategies should deliver.”
“The repricing of assets to the challenging capital market conditions today presents great opportunities, both for the balance sheet as well as an investment management business”
Marc Feliciano,
Manulife Investment Management
On the role of the parent, Manulife IM’s Asia-Pacific CIO Lam is confident this support will be both a competitive advantage for the firm and help it remain resilient financially. “Our insurance business has always had income, even during covid-19 or any other challenging period. Even while our peers in Asia-Pacific are worrying about their China or Australia portfolios because of rising interest rates, for example, we remain in a positive territory because of our long-term and cautious investing approach,” Lam explains.
For some investors, committing capital to a fund sponsored by an insurer that has a long history of investing in real estate can be an appealing value proposition. But it also raises other questions. For example, what stake does the parent company take in its commingled funds? Too little commitment can risk diluting the insurer’s own exposure to the real estate, and too much can result in concentration challenges for the vehicle.
“We think of the general account as an affiliated client or a separate account that, like all other clients, would go through rotation, including for prospective funds. It can choose to do club deals together with other investors or co-invest in funds. The general account can also be the anchor or a founder investor for any prospective fund that we hope to launch in order to capitalize on near-term opportunities over the next 12 to 24 months.” Feliciano explains.
Lam adds: “We believe sovereigns and pension plans may find it attractive to work with us because they know that we are not only 1 percent invested in the deal. There is strong alignment of interest.”
The percentage of co-invest that Manulife Financial would target for a fund or deal would ultimately depend on the investment strategy. PERE understands that for a core investment matching the risk-return appetite of the general account, for instance, it could be above 10 percent; higher risk-return strategies could be lower.
“That 10 percent number certainly creates standout alignment,” comments Hodes Weill’s Hershey. “As long as the balance sheet money stays aligned with the investor money, it will have to contend with the loss of control over its money as it is no longer exclusively in charge of it.”
Focus on Asia
Asia-Pacific has been a key investment region for Manulife IM historically. In the past two years, the firm has established several partnerships for real estate programs. These include a venture with Abu Dhabi state investor Mubadala Investment Company and US manager Proprium Capital Partners to assemble a $600 million Japanese multifamily portfolio, and logistics ventures with specialist manager LOGOS in Korea and Vietnam.
Moving forward, Asia-Pacific is expected to drive 50 percent of the overall growth of the newly focused real estate business.
Despite the economic challenges facing many Chinese real estate organizations currently, the firm will continue to pursue opportunities in the country. According to Lam, the firm has invested on behalf of both offshore and onshore clients in China. “While we are very cautious from an offshore perspective, given the macroeconomic challenges, geopolitical risk and liquidity concerns, we keep investing onshore capital.”
Meanwhile, in North America, the firm is looking to expand into non-core strategies in Canada and credit in the US, across preferred equity, senior lending and mezzanine lending strategies. In terms of thematic sectors, the major focus will be multifamily logistics, in addition to alternative sectors such as life sciences, data centers, senior housing and student housing, among others.
Over the past year, higher interest rates, geopolitical volatility and inflation pressures have impacted real estate fundamentals; the industry has advanced through a period of transition and cyclical buying opportunities are starting to emerge due to repricing.
“The shifts in demographics, digitization and the supply chain reconfiguration are driving our interest in certain alternative sectors,” says Coleman. “Moreover, given where we are in this moment with respect to repricing and structural funding gaps faced by many operators and developers, we are also interested in being a solutions provider across the capital stack for managers.”
The firm has already announced a few pilot deals in recent months that capitalize on these thematic opportunities. In October, Manulife IM provided a $120 million mezzanine loan to finance the construction of an office and retail project in Chicago. Two months later, it announced a notably larger $1.2 billion recapitalization of a portfolio of 35 industrial assets in the US, in partnership with Scannell Properties and StepStone Real Estate.
As for any nascent investment management platform, Manulife IM is likely to face a long road ahead to build out its third-party management capabilities. But unlike others that are starting from scratch, the firm can leverage a long-standing legacy in real estate investing – and a global track record, thanks to the parent company it is now looking to dilute.
Head-hunted
Manulife Investment Management’s charge into third-party management follows an aggressive hiring spree, now complete at the senior level
Maggie Coleman
CIO, real estate equity, North America, and global co-head of portfolio managementJoined from: Sera Global
Previous role: Managing partner
Date joined: July 2023
Kenny Lam
Chief investment officer and head of transactions, real estate equity, Asia PacificJoined from: Link REIT
Previous role: Chief investment officer
Date joined: October 2023
Jessica Lee
Chief investment officer, real estate creditJoined from: BentallGreenOak
Previous role: Head of originations
Date joined: September 2023
Victor Calanog
Global co-head of research and strategy, real estateJoined from: Moody’s Analytics
Previous role: Head of commercial real estate economics
Date joined: June 2023
Erin Patterson
Global co-head of research and strategy, real estateJoined from: Wafra Real Estate
Previous role: Director of real estate research and strategy
Date joined: September 2023
Onay Payne
Portfolio manager, real estate impact investmentsJoined from: Lafayette Square
Previous role: Managing director, real estate
Date joined: September 2023
Jessica Harrison
Head of acquisitions, real estate equity, USJoined from: Pimco
Previous role: Portfolio manager
Date joined: June 2023
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