In March 2013, due to the implications of the insurance regulation Solvency II, France-headquartered insurance company AXA decided to sell its private equity investment arm Ardian, then known as AXA Private Equity, to external investors and to its managers. By September 2013, the spin-off was complete, with Ardian’s management and employees owning 46 percent of the company, external investors having 31 percent, and AXA Group taking the remaining 23 percent.
By the end of 2013, Ardian had 130 portfolio companies, $47 billion of assets under management, 10 offices around the world and 300 investors worldwide – more than half of which were based outside Europe. In its bid to build an investment powerhouse, the company erected four ‘pillars’: Ardian Direct Investment, Ardian Private Debt, Ardian Fund of Funds and Ardian Infrastructure.
Fast forward two years, and Ardian has grown even more, managing funds of $50 billion for 355 investors across the world. The Paris-based investment manager now has its eyes set firmly on conquering Europe’s real estate market.
“We want to become a global investment company and to do that Ardian has gone step-by-step, adding new lines of business,” Bertrand Julien-Laferrière, who joined the firm as head of Ardian’s new real estate investment arm last month, told PERE.
Ardian are not the only private equity powerhouse to roll into European real estate in recent times. Until February, Swedish-based private equity juggernaut EQT Partners was not on the real estate market radar. That all changed when Edouard Fernandez and Rob Rackind, the co-founders of UK-based real estate fund manager Wainbridge, and Fredrik Elwing, the placement agent formerly of Greenhill, joined forces with EQT to launch a pan-European real estate business.
Not that these two private equity players are guaranteed success, says one pan-European private equity real estate fund manager, who pointed to London-based Doughty Hanson as an example of things not always going to plan.
Founded in 1985, Doughty Hanson started life as a European independent private equity fund manager specializing in buyouts of companies with target enterprise values between €250 million and €1 billion. In 1999, the firm launched its first real estate fund, which was a rip-roaring success and ended up generating a 42 percent gross IRR and a 4.1x equity multiple.
But after the global financial crisis, Doughty’s real estate business began to struggle. By then, its former real estate head Marc Mogull had left to form his own firm, Benson Elliot Capital Management. After a six-year absence from the market, the firm tried and failed to raise a third European-focused real estate opportunity fund in 2012.
Yet, sources said Ardian’s Julien-Laferrière should have no trouble convincing investors to get behind Ardian. He is a 30-year real estate veteran whose career has included senior roles at Accor, Club Med, CGW, Unibail-Rodamco and, lastly, France’s oldest property company, Société Foncière Lyonnaise (SFL), where he held the position of chief executive.
“The Unibail guys tend to be very-well regarded and liked. They’ll probably have a few of the big investors who will back a guy like that,” said one European real estate fund manager.
The first thing on Julien-Laferrière’s agenda is to build out Ardian’s real estate team. “We are just starting so what will be important for us will be to build up the team. We don’t want to rush too much into investing. We believe the first investment will be done sometime in 2016.”
To leverage off Ardian’s existing European resources, the firm will look to make senior appointments in France, Germany and Italy to start. Said Julien-Laferrière: “It is going to be European, we don’t want to be just French. We want to be able to build up a portfolio of real estate investments across Europe. We feel that we will start more naturally in France, Germany and Italy because these are places where Ardian is well settled.”
Continuity among change
Yet, despite real estate investing being a new dawn for Ardian, the firm will structure its new ‘pillar’ in a similar fashion to its other platforms.
“We will have as a main product a discretionary fund. Of course, over time we may have in parallel other kinds of structures doing something specific for certain clients of Ardian, or we may be willing to build a dedicated fund that is more specific to asset classes, like hotels for instance,” says Julien-Laferrière.
Ardian will also stick somewhat to its knitting by not heading straight for the top of the risk spectrum, but focusing on capital preservation, long-term investing and value creation.
“I don’t think we will be doing anything on the opportunistic or speculative real estate investing – certainly not at this stage. On the other hand, we will probably not be on the very prime core segment, as far as the fund is concerned. The fund will be much more core-plus or value-add – income-generating assets but with the potential for value creation.”
And as with its other platforms, Ardian’s commitment to real estate will not be trivial. The team will be designed to handle more than €2 billion of investment in five years. Though it is too early for Ardian to set a specific target for the initial fundraise, Julien-Laferrière said it will not be small.
Indeed, he expects the minimum investment size to likely be €50 million. “The idea is to be of a significant scale,” he said.
Yet market skeptics may question the wisdom of entering Europe’s hyper competitive real estate marketplace at this particular juncture. Pricing in the region is reaching a boiling point, due to the demand for yield far outstripping the availability of income-generating assets and some market commentators calling the top of the market.
However, faced with that question from investors, Julien-Laferrière responds that Ardian is in real estate for the long-term and therefore is less concerned about current market conditions. “What we are trying to do is to build up a new line of business for the coming 20 years or more,” he said.
Julien-Laferrière acknowledged that the large inflow of capital into European real estate over the past few years, along with the very low cost of borrowing, have pushed up pricing for properties in the region. “At the same time, we believe there is space to do business,” he said.
Julien-Laferrière said: “A large number have been telling us they are interested in real estate and that they want to grow their exposure in this class of assets. Therefore it’s a natural move for Ardian to expand to real estate when there is such a very strong appetite from existing clients.”
Indeed, European real estate fundraising has been on fire. Europe dominated private real estate fundraising last year, raising a total of $40.3 billion, which is 82 percent more than in 2013, according to research from PERE’s Research & Analytics division.
Yet, for first-time fund managers in Europe, getting your hands on capital is not so straightforward, said sources. One real estate fund manager said that, although Ardian’s reputation and existing investor base should provide them with a platform to start with, replicating the firm’s private equity success in private real estate will not be easy. One issue is that even with strong individual real estate backgrounds, any team will be new and untested together and some investors might want to sit on the sidelines while Ardian builds a track record.
And, with 53 European-focused value-add funds currently in market, Ardian will have to make a great case to even its existing investors if it wants to build out its next pillar.
Established: 1996 (as AXA Private Equity)
Investment arms: 5
Assets under management: $50 billion
Key personnel: Dominique Senequier, president; Dominique Gaillard, head of direct funds; Vincent Gombault, head of funds of funds and private debt; Mathias Burghardt, head of infrastructure; and Bertrand Julien-Laferrière, head of real estate.