Limited partners at the PERE Forum: Asia underlined today how sceptical they had become about global real estate investment management businesses that are part of large, global corporations.
As Day Two of the annual event unfolded, Martin Lamb, director of Asia Pacific real estate investment at Russell Investments, took a swipe at the raft of global corporations that became prominent in private equity real estate in the run-up to the global financial crisis.
Arguing that the LP community had become sceptical about the stability of such platforms, Lamb said: “Before the global financial crisis (GFC) the global platforms were synonymous with global reach, access, resources and stability. Post-GFC we have all come to understand that when a large global corporation has a portfolio of various business interests and strategies, they might have 20-different things going on at the same time. One of those might be their real estate fund management business and that can be expandable or effected by exogenous factors completely foreign to what’s happening on the ground.”
Lamb stopped short of specifically identifying firms, but in the past year alone in Asia, there have been significant disposals by large corporate businesses including Bank of America Merrill Lynch, Citigroup and more recently American International Group. As a former employee of AIG Global Real Estate himself, he continued: “Who would have thought an AAA rated insurance company would come to where it is today? If AIG can do that, are you really getting more stability from a global firm? We want our fund managers to be fully-aligned with us. Part of that alignment is co-investment but for smaller funds, there really is no plan B for the management. They have to see the fund through. It’s their livelihood.”
In contrast, LPs extolled the virtues of investing with smaller, more focussed managers including those promoting first time funds. William Shaw, director for Asia at fund of funds management business, Composition Capital Partners, said: “We have a made a number of investments into so-called first time fund managers. Often it’s their third or fourth vintage but the first with institutional capital. What we have found is the performance of these managers typically outperforms more established managers which are on their third or fourth vintage. At that point, a lot of those managers had become a little ‘fat’ and were less motivated to perform.”
He added that teaming up with smaller managers was more conducive to agreeing more favourable terms as well as enabling them to influence the structuring of the vehicle with the manager. “The smaller funds, who never had the fundraising machine in place, we found actually outperformed,” he said.
Earlier in the day, Mark Burton, former chief investment officer for Abu Dhabi sovereign wealth funds, told the Forum that for Asia in particular, most LPs wanted more transparency than they do in Europe and North America. “Do LPs want a greater say? To a certain extend they do but they don’t want to take on fiduciary responsibility for other LPs. In Asia they want you to be even more transparent. More hand holding is needed.”