The need by investors to commit capital to narrow investing strategies could result in their fund managers missing “the next great deal.” That was the message delegates at the PERE Summit: Europe in London today heard from GPs keen to demonstrate the need for more flexibility as they seek to take advantage of a diverse array of opportunities across the region.
GPs, particularly in the higher risk/return arenas of value-added and opportunistic investing, have of late been under pressure from current and potential investors in their funds to tighten their investment strategies to help mitigate various risks and to increase their controls, following a series of disappointing returns from recent vintages.
However, in a sign of reluctance to over-define their investment theses, senior executives from AEW Europe and LaSalle Investment Management explained during the two-day event’s opening panel that the more rigid a strategy becomes, the less opportunistic it can be. Russell Jewell, head of private equity funds at AEW Europe, said: “To be opportunistic by definition means you need to be pretty flexible and nimble. At the same time, investors expect you to focus on a particular geography or sub-segment of the market.”
Ex-Merrill Lynch and Strategic Value Partners man Jewell joined AEW last year and has been working on an opportunity fund, which launched in March and is targeting €350 million from investors. The AEW Europe Partners Fund is entering its hard marketing stage, and Jewell said there is an opportunity to spend “hundreds of millions” of private equity capital across Europe, but those opportunities are diverse.
“You can’t get investors interested in putting money into vehicles to try to take advantage without trying to define the strategy a bit more,” Jewell said. He noted that AEW made a compromise by declaring a “soft target” of investing 70 percent of its capital into Europe’s major markets of the UK, France and Germany, but the firm would not distinctly outline which property types or which parts of the capital structure AEW would invest in within these markets.
Amy Aznar, head of debt investments and special situations at LaSalle Investment Management, said her platform within the Chicago-based firm was in the fortunate position of having flexibility but that it was essential in order to take down some of the transactions it has completed. LaSalle’s special situations platform has raised £400 million for two discretionary vehicles, of which more than £200 million has already been deployed.
“It’s perfectly understandable that investors want more from real estate. They want more and more control, but it does make it challenging for managers. As a special situations manager, we are fortunate to have such a flexible mandate. But the minute you start to define the box, you’ll find the next great deal falls outside of that box,” Aznar warned.
Not everyone on the panel, chaired by Ernst & Young partner Dean Hodcroft, was convinced that opportunistic strategies were being stifled by tighter investing parameters. Dietrich Heidtmann, managing director for the capital markets division in Europe, the Middle East, Africa and Asia of London-based Grosvenor Fund Management, argued that those managers that do adopt “specialised vehicles” would find it easier to raise capital than those still persisting with blind-pool strategies.
Heidtmann promoted the embracing of deal-led joint ventures and explained that Grosvenor had been successful in such scenarios with sovereign wealth funds and insurance companies. “If it then turns into a separate account, that’s great,” he said, “Every platform has the desire to have more long-term discretionary accounts, but we have to face the reality of the capital markets today.”