Private equity investing has plenty of opaque areas, not least in the field of headhunting. However, one area where headhunters have proven willing to shine a light of late is in private investment firms hiring senior real estate advisors to work alongside funds.
According to Caroline Gibson, head of real estate and private equity at London-based Alderbrooke, live mandates currently are out there.
Although she declined to name names, given client confidentiality, Gibson said: “It is happening right now. As investment firms are looking to re-enter or allocate more capital to real estate in Europe, the senior advisor model is definitely something that is becoming more prevalent.”
The best examples in the recent past are Oaktree Capital Management, which recruited Ian Coull in April 2012, and Kohlberg Kravis Roberts (KKR), which recruited Martin Moore in July 2013.
Coull is a heavy hitter in UK and European real estate circles, his last role being chief executive officer of SEGRO, a London-listed REIT owning and managing warehousing and light industrial property in eight European countries. Meanwhile, Moore joined KKR having been the long-standing managing director and chairman of M&G Real Estate, previously known as Prudential Property Investment Managers.
Private equity firms employing senior advisors to work alongside full-time, in-house investment professionals is nothing new, of course. However, Gibson pointed out that as European real estate is now seeing such buoyant interest from US firms and other organizations such as sovereign wealth funds, appointing special advisors has become “more common and more interesting to them.”
Gibson’s recent meetings with various company boards, chief executives and senior advisors has even led her to produce a paper on the subject. In it, she says the argument for wanting to appoint a senior advisor can be easily understood. While they have often been referred to as a ‘hand break and an accelerator’, their appointment can offer an institution a deep insight into the property market, having personally experienced multiple cycles.
It can be a model that works equally effectively for organizations that are relatively new to a region or sector or for those that have a long history of transacting in Europe. It also can extend to separate accounts.
Further, the demand for senior advisors is not restricted to investing. Sovereign wealth funds that are looking at Europe for the first time also are making appointments. Or the organization might have been investing in real estate for a long time but, due to the last downturn and the harm it did to their funds’ performance, they want to bring in senior advisors to help repair their franchises. Adding this kind of personnel can boost credibility.
The practise does pose a question, though. Shouldn’t a fund manager know what it is doing with the product it is managing? Ultimately, investors should be underwriting the management team and, in a perfect world, shouldn’t need comfort from there being an external expert.
That is certainly the case for groups that appoint local operating partners in their chosen market. They would argue the locals are the experts required, so they have no need for a senior advisor. However, there are circumstances even for experienced firms where it helps to bring in senior advisors.
Rob Wilkinson, chief executive officer at AEW Europe, pointed out that managing a specialist or niche property fund can lend itself to bringing in additional expertise, as can funds that have grown beyond a certain size in terms of volume or number of investors.
Indeed, AEW has found external advisors useful. For instance, in 2012, when it merged three European logistics funds into one, and also when it launched a core fund, having hired a new team led by former UBS real estate professionals. In that instance, senior advisors provided investors with “additional comfort.”
Wilkinson said: “Often, the need for an advisor might be because it is a first-time manager but it also can be a first-time fund for an existing manager. Ultimately, investors will need to back a manager and management team, but undoubtedly investors will take some comfort in third-party committee members and/or senior advisors.”
According to headhunters, however, the worst mistake a firm can make is to appoint a senior advisor for his supposed ability to bring in fresh deals, i.e. his rolodex. By and large, senior advisors do not want to be seen as a quick route to market. They consider this crude and do not want to work for firms that see them primarily as deal generators.
Recruitment specialists said advisors they work with are looking to pass on their experience and assist companies avoid pitfalls in markets. That is why they are at pains to advise firms that, if they are looking to hire people for their networks, they are looking at it all wrong and the appointment most likely will fail.
Alderbrooke’s Gibson said she is aware of a firm that played it the right way in appointing a senior advisor. Apparently, he has genuinely helped the company in question expand in Europe, not via deals but on understanding the nuances of different markets and how to operate in the region successfully.
So, the message from headhunters is don’t hire for the contacts. Hire for the experience.