Thomas Wels, the German-born head of the global real estate business at UBS Global Asset Management is a management consultant by trade. It should come as no surprise, therefore, that as he sits down to talk about the $65 billion group he leads, he calls for the consultant’s reliable stock-in-trade: the business plan.
The plan in question recently was presented to UBS Global Asset Management’s executive committee by Wels and sets out for the inner circle the finely tuned actions he deems necessary and workable to expand upon the real estate platform. As a strategist, it’s just the kind of thing he was brought on board to do.
Wels first joined UBS Global Asset Management in 2005, having spent 13 years at McKinsey & Company. Between 2005 and 2010, he ran strategic planning for UBS Global Asset Management, which meant overseeing or taking part in various corporate acquisitions. That was before the global financial crisis understandably forced UBS to focus on balance sheet issues, as it joined other major banks in nursing large losses.
Nevertheless, Wels managed to build up a strong corporate resume before 2008, including overseeing UBS’ acquisition of a 51 percent stake in Daehan Investment Trust Management in Korea, forming a joint venture known as UBS Hana Asset Management. He also helped take over the real estate business of Germany’s Siemens group, which had €2 billion in three open-ended funds.
In 2010, Wels became chief operating officer in addition to his responsibility for strategic planning. The COO role was expanded to cover business risk management in 2012 in the wake of the Kweku Adoboli trading incident, which led to the bank stepping up risk management across the business. In early December 2012, Wels finally took over as head of global real estate when Paul Marcuse left.
From invisible to visible
Over the course of the interview, Wels runs PERE through the global real estate group’s structure as well as its new strategy, and he does so with a touch of dry humor. “I understand the business top down and, as a strategist, my view always was that real estate is a very attractive business if run properly. Now, I need to show that it also works under my leadership.”
In fact, this is the first time that PERE has interviewed UBS Global Asset Management’s global real estate business – or GRE for short. Perhaps on the surface this seems strange since GRE is an enormous player on the global stage, employing some 400 people in offices around the world and running investments in the US, Europe and Asia. It has around
$65 billion of assets under management, making it one of the largest real estate property investment managers in the world – and possibly the largest if you exclude leverage. Including leverage, it is said to be the second largest behind CBRE Global Investors.
On the other hand, it might not be so strange that UBS Global Asset Management has never given a full-blown interview to this magazine. Traditionally, it has not been active in managing opportunistic funds apart from one in China or in going after highly leveraged or distressed deals. Also, there has been a big pause in publicly saying very much as a organization since the global financial crisis, during which time there have been some corporate challenges as well as big changes at the top of GRE, with Wels taking the helm in December. As one Europe fund manager sums up: “They are a ‘big beast’ but a very quiet big beast.”
In response, Wels says: “In the past, UBS has had profitability and reputational issues, which meant that we sometimes avoided the limelight and messages were lost in the market. Therefore, one of my first messages when I took over was we need to regain visibility.”
Western operations
Ask observers what they know of UBS Global Asset Management’s real estate platform and they usually will say it has a huge business in the US. Indeed, that is correct. Wels explains that, due to the acquisition of Allegis some 13 years ago, it has a $21 billion portfolio in North America, which is one third of the total global real estate portfolio. It also happens to be one of the best-performing core real estate managers in the US.
Meanwhile, Europe accounts for around $22 billion in assets under management. Some $8 billion of that is outside UBS’ domestic market of Switzerland, where it vies with archrival Credit Suisse for dominance via its listed funds, giving it a 36 percent share of that market. Still, the firm’s business in Europe is one that Wels calls “fragmented” as a result of bringing together several businesses. “Clearly, the UK, Germany, France, Spain, Benelux and Italy teams are not as integrated as they could be,” he says. However, steps have been taken to address this.
Only recently, explains Wels, did UBS Global Asset Management come to the conclusion that it needed to integrate the European business better and appoint a new leader, Tilman Hickl. That change was told to staff and some clients in April, and the new business shape provides product and services to international and domestic investors using aligned processes.
Explaining how the ethos has changed, Wels says: “In the good times, we always argued that we didn’t know what was going to be the winning play, so we let many flowers bloom. In the financial crisis, one of the first decisions was that these platforms were only sustainable through better coordination. Unsurprisingly, people started talking to each other and processes improved.”
The Eastern front
The third part of UBS Global Asset Management’s real estate business is in Asia, where it has $9 billion of direct assets. The vast majority of those assets are in Japan through a joint venture with Mitsubishi Corporation called Mitsubishi UBS Realty, which was formed in 2000. The remaining assets in the region are managed via a joint venture with Gemdale, the Chinese developer, through which the pair began residential development in 2008. Given the success of the first venture, UBS is considering further opportunities with its partner.
UBS also has a fledgling operation in Singapore for Southeast Asia products, and, at the time of this interview, the firm was just a day away from announcing new leadership. Indeed, the decision was taken to hire Trevor Cooke, formerly of Australian institutional investor Queensland Investment Corporation, as its new head of global real estate for Asia-Pacific.
Wels says he had come to the conclusion that he wanted to “globalise” the business, and that the executive committee supported that strongly. Indeed, the feeling at UBS Global Asset Management headquarters is that one cannot run Asia from London.
The other measure GRE has taken is to tap more into global cross-border flows of capital. By Wels’ own admission, GRE has never really supported or utilised UBS Global Asset Management’s sovereign wealth fund client base. This is partly because, even through the global financial crisis, the UBS domestic business was performing well. However, the real estate group doesn’t want to ignore the global cross-border flows any longer.
Therefore, on the same day as Wels took over, the bank also promoted Richard Johnson to grow its fledgling global business development function. He took over at the beginning of December to improve communications between regions and help move cross-border money to larger markets. Wels mentions the Netherlands, Korea and some parts of Scandinavia as being part of the cross-border trend.
The multi-manager component
Another large part of the GRE business is the global multi-manager and securities group, which began in 2007 and was run by veteran Roddy Sloan until a few weeks ago. Having built up the global fund of funds business to around $10 billion of real estate, Sloan recently retired from the firm and Eric Byrne has taken over after having served as chief operating officer of the platform.
The interesting thing to note about the multi-manager and securities platform is that it began to expand to aide institutional investors in 2009. That is the same time as UBS decided to exit its Wealth Management Real Estate business, which had been built up since 2005 for family offices and high-net-worth individuals.
Under Sloan’s watch, the management of the $12 billion Wealth Management Real Estate fund of funds business transferred to GRE in 2010 and a great unwinding exercise began. Since being transferred, around $4 billion of real estate fund interests have been reduced. In other words, UBS Global Asset Management’s global real estate multi-manager platform is comprised of around $2 billion of institutional-owned assets, which is being ramped up, and a remaining $8 billion of family office and high-net-worth interests to be disposed of over time.
The final piece of GRE is segregated mandates, in which UBS Global Asset Management has a legacy of open-ended funds. Indeed, the bank has a 70-year-old open-ended real estate fund business in Switzerland, a 35-year-old business in the US and the UK open-ended platform has been going around 20 years, but not all has gone swimmingly. In Germany, for example, the firm decided to liquidate its €343 million 3 Sector Real Estate European open-ended fund in 2012 because liquidity was not high enough for it to re-open the vehicle for redemptions after the two-year maximum closure period. The point is that UBS offers open-ended funds or separate mandates for very large institutional investors, while the wealth management area services family offices and high-net-worth individuals.
Turning the frown around
The document in the hands of Wels, though, is not about describing the various investment channels that GRE has to offer. Instead, it contains plans hitherto for UBS eyes only about how to address a problem and improve the business. The problem is that there currently is a concentration of risk in the US, Switzerland and Japan.
According to Wels, over the last two to three years, the majority of GRE’s new capital came from Switzerland into Swiss open-ended funds; the global multi-manager group, which is mainly cross-border equity; from US pension plans investing in US open-ended funds; and from Japan into its joint venture REITs.
“I am not happy with the shape, and it has something to do with the risk profile,” says Wels. “The investment performance of our US business is extraordinary, but clearly I would prefer a more diversified model. Being so dependent on three regions is not sustainable.”
As a result, the man who began as a management consultant is tasked with building out a more diversified business under his leadership. The starting point is to increase the money flowing into GRE’s European region, and Wels is putting sovereign wealth funds and European pension plans at the core of its strategy.
Obviously, the bank has witnessed how sovereign wealth funds have been investing in prime assets in the markets such as London, Paris and Munich, where prices have become inflated. However, GRE has not been active in advising sovereign wealth funds on real estate investment deals the way some rival firms have been. That is despite the bank having a large dedicated sovereign wealth fund team within UBS Global Asset Management advising on investment in asset classes such as fixed income.
“We are now spreading the word with our very large sovereign wealth fund team that we see the opportunities coming in the next two quarters with Asian and Middle Eastern capital advancing,” Wels says. Therefore, GRE will tap into Richard Johnson’s global business development business and UBS Global Asset Management’s sovereign wealth fund team at the same time to increase this flow of capital into European real estate.
At the same time as helping sovereign wealth funds, Wels sees European pension plans as a growth area and diversifier for GRE. There are, he says, pensions such as those from the UK and Germany that have most of their real estate assets held domestically but that wish to diversify cross-border. This can clearly be done via GRE’s multi-manager unit or select direct real estate funds. For example, a European pension plan can invest today in a $300 million multi-manager fund domiciled in Luxembourg, assuming that potential investors can make the structure work within the confines of regulation, tax and so on.
Other initiatives
New funds also will form part of the game plan to expand and diversify, and a subgroup of the management team known as the product and innovation committee is hard at work assessing all the ideas. The subgroup analyzes research, takes a look at domestic and regional opportunities and gauges client demand. If those three areas “fit together,” then the bank is prepared to set up a fund.
“Over the next six quarters or so, we are going to launch a wave of different products,” says Wels. The “hard pipeline” contains a UK mortgage fund to be led by Anthony Shayle, who recently was named to the post of head of global real estate – UK debt. There is also a “soft pipeline” of products that Wels prefers not to divulge in detail, although he notes that there is a ‘value-added’ vibe as part of the current thinking.
The one thing GRE definitely will not introduce anytime soon outside of Asia, however, is an opportunity fund as such a product lies too far outside of its traditional focus. Still, the smoke signals seem to indicate that, if certain ideas translate into actual funds, UBS will be playing in a higher-return spectrum, certainly more so than currently.
Plans don’t stop at sovereign wealth funds, European pension plans and new products. One other area forming part of Wels’ blueprint for growth and diversity involves taking over the management of other funds or platforms. Indeed, he suggests that the experience that GRE’s multi-manager platform has gleaned from winding down the $12 billion Wealth Management Real Estate fund of funds business has given UBS the profile and back story to pitch for third-party mandates. These might be under the radar or few and far between, but it could yield significant wins for GRE – and that is precisely what the firm is after.
On the way out of the interview room with the business plan in Wels’ hands, it is clear that diversity has become the name of the game at GRE. Furthermore, it appears that the firm has put its trust in the right man for the job.
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UBS Global Real Estate
Year established: 1943
Year incorporated under
UBS Global Asset Management: 2005
Headquarters: London
Other offices: Chicago, Dallas, Hartford, New York, San Francisco, Hong Kong, Shanghai, Singapore, Tokyo, Amsterdam, Basel, Frankfurt, Geneva, Lausanne, London, Luxembourg, Madrid, Milan, Munich, Paris and Zurich
Staff: approximately 400
Assets under management: about $65 billion
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A landmark deal
UBS Global Real Estate has kept trading on behalf of its investors. In one of its most recent deals, the bank sold the Skyper office complex in the heart of Frankfurt’s banking district for €300 million to Allianz Real Estate. UBS had owned the property on behalf of one of its funds since 2006.
The purchase, which was made on behalf of various Allianz companies, marks the first Frankfurt skyscraper in the German insurer’s property portfolio.
The Skyper complex comprises a 38-story office tower as well as a six-story building of shops and apartments and the historical Villa Holzmann building, a neo-classical villa dating from 1915 that once served as the corporate offices of the Philipp Holzmann construction group. The skyscraper’s primary tenants include Deutsche Bundesbank, Deka Investmentfonds, HSBC and international law firms Bird & Bird and Weil Gotshal & Manges.
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