PERE Forum Asia 2010: Club deals labelled ‘Back to the Future”

Jim Quille, chairman and chief executive officer of MGPA added his name to the growing list of fund managers who doubt how widespread ‘investment club’ structures will become. Today, he shared his thoughts with PERE on-stage

Jim Quille, chairman and chief executive of MGPA, insisted today that while investment club structures will be explored by the largest of investors, they will not become widespread in real estate.
Quille, whose firm invests in Asia and Europe, told delegates at the third annual PERE Forum: Asia conference in Hong Kong the notion of investment clubs being used by all investors had an element of being “back to the future” as  was a theme last explored significantly nearly three decades ago.
He said: “It’s all a bit ‘back to the future’. People have questioned [the traditional blind pool, commingled fund] model before. But I have no doubt that some of the questioning that is going on today is a direct reaction to some of the losses that have been incurred.”
The debate about whether club-style investment structures would replace more traditional private equity real estate funds, where the fund manager has total discretion on capital commitments, raged throughout the two-day event, with many fund managers questioning the impact of investment clubs.

However, opinion was shown to be split as 41 percent of the approximately 150 delegates said they expected joint ventures and club deals to attract the most capital in 2010, compared with 36 percent for regional opportunity funds and 23 percent for country specific funds.
Quille highlighted the lack of resources at most small to medium sized investors, preventing them being able to participate in such structures.
He said: “Take a small pension fund, for example – an organisation with less than $1 billion in real estate. Club deals are not going to help with their diversification. I think they have to stick with fund of funds and direct funds. For the larger or mid-sized investors which have perhaps $1 billion to $4 billion in real estate – I think going direct will mean an increase in staff. I’m not sure how they build a platform that enables them to have economies of scale. For a club deal it means two or three people underwriting a deal.”
“Go back to the late 70s or early 80s and take the Dutch pension funds or some of the UK insurance companies, for instance. Real estate represented up to 15 percent of the portfolio but perhaps 50 percent to 60 percent of their staff. Where is the value in that?”