Grosvenor Fund Manageemnt senior team Grosvenor Fund Management Our job right now is to take a business in excellent shape to a pre-eminent position in the property fund management business. GFM chief executive, Jeffrey Weingarten
Blue blood brothers
Established: 2005 (1667 for parent company)
Other offices: Liverpool, Paris, Madrid, Milan,
Luxembourg, Philadelphia, Shanghai and Tokyo
Assets under management: £3.6 billion (about 35 percent of all assets owned by the Grosvenor Group)
Third party investment: £2.8 billion
Most recent funds:
Grosvenor Office Retail Fund (2007, Japan office)
Grosvenor Residential Investment Partners (2007,
US residential debt)
Grosvenor Vega – China Retail Fund (2008, China
New strategies being considered:
a follow-on US residential debt fund
a US multifamily apartment vehicle
a US senior-care partnership investing in medical office and senior housing,
a Tokyo mixed-use fund
a UK office fund,
a follow-on China fund
a European retail fund
Today, of course, Grosvenor is nothing like the family concern it was 300 years ago when it owned swathes of swamps, pastures and orchards in London. Instead, it has a distinctly modern commercial real estate feel to it with assets stretching from Continental Europe to North America and Asia, offices in nine global cities and a separate property investment management business called Grosvenor Fund Management.
It is this part of Grosvenor – the fund management arm with around £3.6 billion in assets – which PERE has come to learn about. For good reason, too, as a new chief executive took the helm in March with his own ideas and a mission to introduce up to seven new investment vehicles, as well as potentially introduce new business lines altogether.
Facing the future
Upon entering Grosvenor’s offices on London’s Grosvenor Street (yes, the firm owns the street), one quickly gains the impression that this is a particularly English company with a long history but with a modern face.
At first, visitors to the firm’s headquarters arrive to a glass-enclosed entrance hall. Behind the modern reception desk, however, is a foyer where one can find a collection of artefacts encased in glass, as if they were part of a miniature museum. Among the exhibits appears to be a crown, and hanging from the wall are portraits of all six Dukes and Mary Davies, whose austere matronly face appears in the middle of all of them.
Present are Jeffrey Weingarten, who became chief executive on 17 March after having served as a non-executive board member since 2010; Robert Davis, a former professional at General Motors who was elevated in March to chief operations officer; Doug Callantine, director for the US; Mervyn Howard, director for the UK; Morgan Laughlin, newly recruited this year as director for the Asia-Pacific region; and Dominic Field, a former professional at Credit Suisse Real Estate Funds Group who is director of business development. James Raynor, director for Europe and newly appointed global chief investment officer, is the only one missing after needing to jet back to the Continent.
Within this boardroom are significant experience, drive and resolution to build Grosvenor Fund Management.
The first thing to note, however, is that the new boss is not English as one might have expected from a company so quintessentially English. Instead, Weingarten is a New Yorker with a resume as Wall Street as one can get, having worked at Goldman Sachs from 1977 to 1998 in various capacities including partner, managing director and chief investment officer of Goldman Sachs Asset Management International.
Weingarten first joined Grosvenor Fund Management in 2010 as non-executive chairman of the board, but this year he took over the reins as chief executive from Stuart Beevor, the man who led the formal establishment of Grosvenor’s fund management arm in 2005.
In a slow, somewhat considered, gravelly voice, Weingarten lays out the big picture for Grosvenor Fund Management. He is not a gun-blazing Wall Street upstart, but more of a patriarch befitting of such a storied firm.
Incidentally, over the hour-long discussion, there is no mention at all of the Duke himself, who supposedly is the third richest man in Britain behind Lakshmi Mittal, the steel magnate, and the Russian oligarch Roman Abromovich. Instead, the reference point is that Beevor has left, and the group has a strategy to continue building what has been started.
“What I am taking over from Stuart Beevor is a business in really good shape,” says Weingarten. ”Our job right now is to take a business in excellent shape to a pre-eminent position in the property fund management business.”
Indeed, Grosvenor is in a unique position to do just that. “We have a 300-year history and a strong culture that is very client orientated,” Weingarten says, “If we combine that historical strength with fund management through a creative and dynamic force, we will build a business that creates value for our investors. There really is no other fund manager in the world that can say it has combined such a strong culture and historical base with creative dynamism.”
One assumption easily made by those that come into contact with Grosvenor is that, because its fund management division was formally created in 2005, it has only been managing third-party capital for six years. The other common assumption is that Grosvenor Fund Management is a business that began in Europe and only recently expanded to North America. Both would be wrong.
In fact, although Grosvenor has long-standing funds in the UK that go back to the late 1990s, relationships with investing partners in the US go back some 35 years. As a property company, it entered the North America real estate market in the 1950s, opening its first international development in Vancouver in 1955. The company has since built up a $1.2 billion portfolio of diversified assets on behalf of eight separate account clients. In addition, the very first true fund the firm ever launched was in the US in 1976.
It is no exaggeration that if one asks participants in the property investment industry about Grosvenor, you are very unlikely to hear a bad word said against the firm. It seems to be universally regarded as a well-managed business with a seasoned team that is dogged when it comes to complex inner city developments.
However, in order to become the “pre-eminent” property fund manager it wishes to be, Grosvenor needs to raise funds, as well as bang the drum that this is a business with deep roots. Or as Weingarten describes it: “A reliable, predictable and dependable fund manager.”
Since starting out, Grosvenor’s fund management business has operated and grown in the core and value-added space, frequently in the retail property sector (though not always so), and more often than not investing on behalf of separate account mandates or club funds, as well as commingled multi–investor vehicles. It has 70 investment partners in 24 funds and separate account mandates and assets under management of around £3.6 billion – roughly 35 percent of Grosvenor Group’s total assets. Approximately 45 percent of its assets are located in the UK, with the remainder in the US, Continental Europe and Asia.
Along with most other property managers, Grosvenor Fund Management has endured a fair amount of pain over the past couple of years. As its 2009 annual report states, 2009 was an “extraordinary year of financial crisis with the worst property market conditions inn decades.”
The firm would say it has weathered that storm, making returns of negative 4.1 percent in 2008 and a slightly better negative 2.8 percent in 2009, during which time it refinanced or repaid £1.2 billion in loans. Just this past January, it managed to secure £385 million of refinancing for The Grosvenor Liverpool Fund, which owns a 1.6 million-square-foot development in the English working-class city (see The signature investment, below).
Vehicles of growth
With most restructurings complete, there is a feeling that a new era has arrived. Investors apparently applaud the job Grosvenor has done, and the firm is in growth mode once again, the fund team says.
In addition to putting existing assets in order, the company continued to speak with investors throughout the downturn about potential new funds, but investors were simply unprepared or unable to commit. That apparently has changed.
“We will be presenting to our clients a whole range of products, both geographically and across the risk spectrum, says Weingarten. “Over the coming months and years, we want to have a full range of property and property-related products.”
In fact, Grosvenor has a number of products coming to market right now. “We are talking about a follow-on US residential debt fund, a US multifamily apartment vehicle, a vehicle in the US focused on senior care, a Tokyo fund, a UK office fund, a follow-on China fund and a European retail fund,” Weingarten notes. “We also are looking at expanding our product line to invest in property both directly and indirectly, perhaps even derivatives at some point. In growing this business and taking it from excellent to pre-eminence, there’s a client and product focus, and that is how we expect to achieve our goals.”
Don’t be mistaken; this is not said with any breathlessness. The Grosvenor pipeline of investment vehicles is the product of many conversations and market observations over an extended period of time.
Asked whether this could be described as “aggressive” expansion, and exactly how many funds the firm could have in the market at any one time, the team stiffens a little – keen not to give the impression that it is growth for growth’s sake.
“It is not about all the money we can manage, it is about the money we should manage,” says Weingarten. “It might appear to be aggressive, but be mindful that to get to the point that you have a product takes time. We were looking at these funds over the last couple of years in some cases. It is a natural evolution and, most importantly, what our clients want.”
“Quite understandably, clients have more liquidity needs,” adds Weingarten, who has found they want more bespoke-type product. “But what they really are looking for is people who have weathered many storms over the years. Obviously, we can’t just rely on our culture and history. We need to deliver product to our clients that satisfy their needs.”
Weingarten underscores the point further. “It might appear there is a lot of product, and in fact there is, but bear in mind there hasn’t been much appetite, and a lot of clients’ time and ours were spent looking in some circumstances at restructuring,” he says. “We think – and our clients would think – we have done a good job where we have had to restructure. Having said that, we do have a firm base from where we can look forward. Clients’ appetite for risk is increasing from a zero base the last couple of years. It is not that we woke up on the 1st January and said we have to have product. These are things we thought about, prepared for and structured over the last 12 to 18 months.”
Diversifying its focus
Grosvenor is known in fund management for mostly core vehicles, with some value-added investment funds, and therefore is perceived as a low-risk fund platform. Asked what the firm would do if clients said they wanted Grosvenor to launch an opportunity fund, Weingarten jokes: “An opportunity for whom? I mean, clients may come to us and say we would like you to do this, but if that is not something we are comfortable with or lack the expertise in, that is not what Grosvenor is going to do. We are going to do something where we feel Grosvenor can make a contribution.”
That is not to say Grosvenor does not introduce different investment types. In 2007, for example, it raised Grosvenor Residential Investment Partners, a US residential lending vehicle that was the firm’s first debt fund. That has been so successful that there is lingering appetite among investors for a follow-on fund in the US, according to the team.
The other fund product mentioned specifically is a Japan offering. Clearly, in light of recent events in the country, the firm has had more immediate tasks and worries.
Weingarten says Laughlin, who joined this year from Royal Bank of Scotland, and his team have been through difficult times, both personally and professionally. The firm has had a vehicle in the works for a while. Though the earthquake affected those plans to some degree, there still is very much the appetite to bring the vehicle forward.
In fact, in a sense, what happened in Japan could actually make the case for investing in Tokyo more tempting as the city becomes a more attractive place to live and work compared to other locations in Japan. The forthcoming fund will have the flexibility to buy residential property and offices. “We feel it might be more of a focus after recent events,” Weingarten sums up.
In addition to plans for other funds in China and Europe (see Surveying the European vista, p. 25), there also is a plan for the UK. Earlier this year, it extended the life of the £400 million Grosvenor London Office Fund from 2012 to 2017, which the firm says has outperformed the Investment Property Databank index since its inception in 1999. Grosvenor is opening the vehicle up to new investors to take advantage of new opportunities in London’s office market.
Above and beyond these new investment vehicles, there could be altogether new business lines coming out of Grosvenor. For example, the firm doesn’t have a real estate securities business, but that might change as Weingarten cannot think of a good reason why Grosvenor should not be in equities. Perhaps this is unsurprising, given that he has a background in equities from his time as a global strategist at Goldman Sachs.
“I am not sure where you would put this on the risk spectrum, but one of the areas we have not been in but are thinking very seriously about is property equities,” Weingarten says. “If you take the view that property underlies property equities and you have knowledge of that property, then you have a very healthy knowledge of what the equities ought to be worth. We have the knowledge of property on a global basis and therefore think we are in a position to add value.”
Cleary, the firm would need to add more equities personnel, but that is something Grosvenor could “get comfortable with,” Weingarten notes. The other potential new plank – though there are no immediate plans for it – is property derivatives trading.
All of these plans concern what is sometimes termed as organic growth rather than expansion via corporate acquisitions. Now that a new chief executive is at that helm, could corporate deals materialise? The answer is you should be “surprised,” but “not amazed,” if it did.
In its 300-plus years, Grosvenor has only ever made one corporate acquisition. In 2006, it purchased Legg Mason Real Estate Services to boost its fund management activities in the US, adding $2 billion in assets and 30 staff.
“When you do it once every 300 years, it doesn’t exactly set a trend, but I certainly do not want to rule out that possibility,” says Weingarten. “The industry is changing fairly dramatically, with a fair bit of consolidation, and a lot of talented individuals find themselves in positions where the business has fallen on hard times through no fault of their own. We will be opportunistic both with respect to individuals and organisations.”
Weingarten adds: “All I am suggesting is that our standards are very high. This is certainly not something we feel we have to do, it is not something we feel we even want to do, but it is certainly something we would consider if that absolutely rare opportunity does come along.”
The bigger picture is that Grosvenor as a property company wants to see growth in Asia and growth in the fund management business, and what the firm wants to do usually gets done one way or another. Indeed, it has that English stick-at-it quality running through its veins.
“The only thing that could prevent us from achieving our aims is inability or unwillingness of clients to invest, Weingarten says. “I’d like to think we provide them with ample opportunities and vehicles in which to invest but, at the end of the day, it is their money that has to be put to work.”
Surveying the European vista
A new European retail fund is in the works at Grosvenor, as well as an office in Stockholm
Elevated from director for Europe to chief investment officer earlier this year, James Raynor says Grosvenor will continue its focused approach when investing in Europe. That can only mean one thing: more retail assets.
Grosvenor’s European portfolio is weighted 80 percent towards retail assets, which Raynor says is in line with investors’ wishes for fund managers to be specialised and focused. “The retail sector in the medium term will remain a core part of our business,” he adds, noting that the firm currently is investing a French retail fund, for which it acquired €160 million of assets last year
In line with this strategy, Grosvenor’s next product in Europe also will be a retail offering, probably with a wider European remit that includes Italy and Spain. In addition, the company is working on opening an office in Stockholm, suggesting the Scandinavian market could figure into Grosvenor’s broader European portfolio at some stage in the future.
Raynor notes that most retail property funds tended to be geared towards shopping centres, but Grosvenor’s fund could well be differentiated from them by focusing on urban retail, or “town centre” properties, which he says have proven to be a resilient. And while there is no reason why Grosvenor shouldn’t be involved in development projects, he adds that the firm is focusing more on acquisitions at the moment.
Part of the task, Raynor notes, is to promote a fund with liquidity. As a result, Grosvenor is looking at structuring a fund with no maturity date, instead offering windows for investors to sell holdings at those times should they wish.
The signature investment
Grosvenor is best known in the UK for a politically sensitive and highly complex development of a new shopping centre in Liverpool
By the 1980s, Liverpool’s city centre was marked by decaying and ruined buildings – the result of several decades of decline for the city’s dockyard industry. In 2004, however, Grosvenor moved to re-energise a 42-acre site around Paradise Street after it was selected as the city’s partner.
Grosvenor Fund Manageemnt senior team
Grosvenor Fund Management
Our job right now is to take a business in excellent shape to a pre-eminent position in the property fund management business.
GFM chief executive, Jeffrey Weingarten
Having conducted a mammoth round of planning consultations and winning the necessary permits, Grosvenor created the Grosvenor Liverpool Fund for six outside investors to help finance and own the new shopping centre and leisure project, now known as Liverpool One.
Grosvenor opened the centre in 2008 and completed the final element of the project – the development of a Hilton hotel – in 2009, despite the onset of the financial downturn. Robert Davies, chief operations officer, says: “When we decide to do something, we stick with it.”
Liverpool One, which covers 1.6 million square feet, is now 98 percent let and has created jobs for around 3,500 people.