This month, the sale of the Asia real estate business of London-based insurer Aviva to the asset management business of New York-based investment bank JPMorgan, is likely to conclude.
According to those in the know, the purchase from Aviva Investors will see JPMorgan Asset Management’s Asia real estate exposure double in terms of the value of its assets under management to $2 billion.
The bank’s Asia real estate team should swell to around 50 staff too, making it one of the biggest in the region, although PERE discovered that chief executive officer Ian Hally will not be switching badges.
While the two platforms fit together snugly in terms of their geographical reach – Aviva has teams and investment vehicles focused on properties in Japan, Australia and New Zealand while JPMorgan has funds dedicated to China and India – the investment bank already has an Asia real estate head, David Chen.
Beyond the departure of Hally, and one or two other departures typical of a platform acquisition of this nature, JPMorgan is said to be recruiting a team pretty much intact.
Is the acquisition of Aviva Investors’ Asia real estate business the crest of a new wave of corporate mergers and acquisitions in the private real estate market in the region? Probably not.
Thanks largely to a far more supportive, dare I say, insatiable, institutional capital market these days, there is really a sense of corporate calm in the East at the moment.
The turmoil from the global financial crisis, which saw Merrill Lynch’s Asian real estate principal investments unit jettisoned to Blackstone, Citigroup’s sold to Apollo and American International Group’s to Invesco, really simmered down by the end of 2011. Even BlackRock’s purchase of MGPA is nigh on a year old.
Anyone closely scrutinising the sale of the Aviva platform – which, by the way, is likely to cost more like $10 million to $15 million and not $300 million like certain corners of the Australian press have reported – will realize this transaction really is little more than a late straggler from the crisis.
After a protracted period of post-crisis suffering, in the summer of 2012, Aviva instigated a strategy to streamline its activities with a view to regenerating value for shareholders. That meant sifting through the £246 billion (€293 billion; $407 billion) company and chopping away any low-margin, under-performing or non-strategic business. Unfortunately for the folk of Aviva’s Asia real estate business, eventually that included them as well.
Observers say the culling by its parent company was harsh. Possibly it was. Relatively new fund management platforms like this one – its UK and European businesses are better established –should be nurtured over many years before they become notably profitable. Just ask venture capitalists, there are J-curves at the platform level as well as the fund level.
But then again, it has also been proven to be the right call. The big picture is looking brighter for Aviva these days with a share price that has escalated by more than 90 percent since it started streamlining.
In any event, JPMorgan should provide for the platform precisely what Aviva could not – a stable home. And capital. The platform has been unable to call upon the one-time reliable flow of capital invested through its funds and accounts by Aviva entities since the latter part of last year.
JPMorgan, by contrast, will want to connect the platform to its distribution channels as quickly as possible in order to expand its AUM to something more befitting of a 50-staff platform with offices across the region. At $2 billion, it still is smaller than some single country-focused outfits in the marketplace.
The bank would not have taken on a platform that has been regarded by others as being cost-heavy and income-light if it was not to use the infrastructure that comes with it for some serious growth.
And, as said above, there is tangible support now for the asset class from the private capital markets these days. Besides JPMorgan’s capital – and the Volcker Rule will limit that – institutional investors have been very ready to back private real estate investment management firms that do not have black marks against their name or track records and so will need tapping up. JPMorgan has a fund apiece in China and India but, beyond those, has been something of an unknown entity with little discolor to its name.
The bolting on of Aviva Investors to its real assets business in Asia will herald something of a new image for the firm. One person with knowledge of the deal even called it a “game changer”. It probably is.
It certainly constitutes the end of the game, however, for Aviva Investors in the region. But it is not a game changer in terms of what is going on in the wider market. Most of the pieces on the board were put into play a year or more ago.