Jonathan Goodman’s cause is helped by virtue of being both fund manager and operating partner, which few private equity real estate firms can replicate
I remember reporting in October 2008 that Goodman’s shares had been suspended as it prepared to inform the market on how it would repair its balance sheet after over-expanding in the run-up to the global financial crisis. The group wound up undertaking a rights issue and disposing of assets, as well as refocusing on Asia – considered then to be more insulated against the struggles in America and Europe than it actually was.
In a statement at the time, chief executive officer Greg Goodman used phrases such as “streamlining” and “prudent management.” He underlined the importance of positioning the firm “to manage the current market fluctuations” and talked about “unprecedented levels of volatility.”
Goodman was no Centro Properties Group though. Its overexpansion was on a far smaller scale, extending to a few hundred million dollars paid for a handful of industrial developers in Europe and the UK at roughly the wrong time. Centro, on the other hand, ploughed billions into US retail at precisely the wrong time.
Centro was fated to be stripped down by private equity groups acting on behalf of the world’s largest institutional investors. Goodman, meanwhile, turned to some of those same large institutional investors and found an elixir instead. Judging by its news in June, the firm hasn’t looked back since.
That news came hot on the heels of Goodman’s announcement earlier in the month that it had formed a global joint venture with the Employees Provident Fund (EPF) of Malaysia, the world’s ninth largest pension plan with $146 billion in assets. That deal commenced with an approximately A$500 million combined equity commitment and investment in an initial Australian portfolio valued at A$400 million.
Goodman also has partnered with the Abu Dhabi Investment Authority, China Investment Corporation (CIC), the Government of Singapore Investment Corporation and Stichting Pensioenfonds ABP, among other institutional heavyweights. According to combined figures from Towers Watson and the Sovereign Wealth Fund Institute, we’re talking about close to $2 trillion between those investors, making them powerful bedfellows.
As stated earlier, Goodman found salvation at the hands of these institutions. For example, when further repairs were required in 2009, it was CIC that helped to recapitalise the company with a $500 million hybrid security issue that, in the process, transformed the sovereign wealth fund into its largest external shareholder with an 18.2 percent stake. The capital injection saw CIC inherit participation options in new acquisitions, options on its existing portfolio and further rights to “private and public market situations across Goodman’s platform.” It was an opportunistic play by CIC, but it also created an episode of alignment between a ‘third-party capital manager’ and an ‘institutional investor’, forms of which we have seen repeated on numerous occasions since, albeit with perhaps not quite as much of Goodman’s skin in the game.
Today, a minimum commitment by Goodman of approximately 20 percent is proving sufficient. EPF’s deputy chief executive officer Dato’ Shahril Ridza Ridzuan said as much in the announcement of their joint venture: “Goodman’s ability to demonstrate their alignment of interest by investing alongside EPF was a key differentiating factor.”
Goodman used to operate commingled funds, but it has been quick to evolve. In an accompanying investor update stapled to news of its US expansion, the group stated that it now “usually” operates through joint ventures and club vehicles. It underlined a willingness to form investment committees with its partners as well as offer visibility over key decisions such as acquisitions, disposals, development and finance – things still often subject to a tug of war between GPs and LPs even today.
One source told PERE: “Goodman has recognised that the market standards for governance and other terms have changed radically. They were quick to recognise that even for some of their existing vehicles from vintage years.”
Goodman’s cause is helped by virtue of being both fund manager and operating partner, which few private equity real estate firms can replicate. Then again Centro also was both of those things and look what happened there. So, whether it is luck, design or a combination of the two, kudos are in order.
Goodman’s cause is helped by virtue of being both fund manager and operating partner, which few private equity real estate firms can replicate