In August 2013, Nigel Wilson, the chief executive of Legal & General, one of the UK’s largest insurers, made a £15 billion (19.6 billion; $22 billion) pledge to domestic infrastructure. He wanted the company to increase its £3 billion investment in the asset class five-fold over the next ten years to support transport, energy projects, housebuilding, property and education. Roll on 18 months, and structural change has come to Legal & General Investment Management’s (LGIM) property arm, which is the third largest real estate business in the UK with more than £15 billion under management. In an announcement last month, LGIM said it was combining property and infrastructure teams to form a single Real Assets Group, with Bill Hughes as chief executive in a newly-created position. Hughes, who joined Legal & General from RREEF Real Estate as head of property in 2007 has been tasked with making sure investment can follow.
Speaking with PERE, Hughes said LGIM was looking to be “holistic” about how the firm approached the “built environment”. Certainly, public sector investment in the UK is lacking, proving an opportunity for private capital to fill the gap, said Hughes. He added: “We are looking for synergies for real estate alongside infrastructure as the UK changes over the next decade.” Both teams are already co-located in the same London office at 1 Coleman Street. He further explained: “Investors understand the connectivity between the two asset classes. Individually, real estate is in the ascendency and has become more desirable as an asset class, and similarly infrastructure is in the ascendency. A number of investors have approached me who think about real estate, and want to talk about infrastructure. Literally in the last 24 hours I have had three mainstream investors that want to talk to us because they like the way we are thinking and the joined up approach not least because the style of them is relatively similar – asset-based, long term, stable assets that can provide inflation proofing. Of course, it also has some negative attributes such as illiquidity, but they are long term investments and we have witnessed a positive reaction to our move.”
Asked whether the firm would launch a combined fund, Hughes said the franchise had not yet considered the idea. Commenting on a commonly-held view that investors might be slow to embrace a move towards a Real Assets allocation model, Hughes’ answer is that deals most certainly help. “If you give investors the opportunity to park a subject then things don’t change. One of the challenges that we will be dealing with head-on is making sure we can provide relatively speedy, high-quality access to both these asset classes, and sometimes together. My hope is to help the market evolve in this direction.”