At the Real Estate Emerging Manager Summit in Austin this week, delegates were asked whether they considered it to be a conflict for a consultant to have both discretionary and non-discretionary businesses. Seventy-eight percent of the audience answered yes.
Courtland Partners, which currently has $92 billion of assets under advisement, has long been in the ‘yes’ camp, having touted its own lack of conflicts and its exclusive real assets consulting focus as “its most important distinguishing feature” on its website. In doing so, the firm has sought to distinguish itself from industry rival Townsend Group, which has had to contend with the perceived conflicts of interest associated with having both consulting and investment management businesses under one roof.
That will soon change, however, as Courtland, one of the private real estate industry’s most prominent consultants, has agreed to be sold to StepStone Real Estate, as PERE revealed this week. SRE not only has its own $7 billion advisory business, but also a $2 billion investment management platform that deploys capital via funds and separate accounts.
Although the Courtland team will continue to serve its existing consulting clients, it will also be working to bolster SRE’s fund manager research capabilities, as well as assist in underwriting secondaries and co-investment opportunities.
Courtland consequently must be prepared to face similar concerns or assumptions about a conflict of interest as Townsend has.
The firm is already giving thought to the issue. In an interview with PERE last week, Jeff Giller, managing partner and head of SRE, said both firms are ready to address the issue on several fronts.
For one thing, SRE’s investment products, which are focused largely on indirect real estate opportunities such as fund and secondaries investments, are not intended to compete with the funds that the Courtland team could potentially recommend to its consulting clients – namely products sponsored by managers that directly invest in real estate. And if a consulting client were to be interested in investing in a StepStone real estate product, it would have to evaluate the opportunity on its own or work with an outside consultant.
And as we pointed out earlier, SRE already has both advisory and investment management businesses, so although acquiring Courtland will give its advisory business a significant boost in advised assets, team size and name recognition, SRE has already been managing the perceived conflict issue for some time.
Courtland can also look to Townsend, which has worked to minimize potential conflicts by having separate teams as well as different client bases for its investment management and consulting businesses. And while some institutional investors have taken issue with the firm’s dual business structure, ultimately Townsend has not suffered because of it: its advisory business has held steady, with $167.1 billion in advised assets as of June 30 compared with $170 billion as of December 31, 2014; while its investment management business has grown from $12.8 billion as of June 30, 2015 to $14.8 billion three years later, according to figures previously disclosed by the firm.
Against such a backdrop, Courtland, soon to be StepStone Real Estate, certainly has the potential to follow a similar trajectory.