QUESTION & ANSWER: ‘Right team, strategy, structure’

PERE:  What does the fundraise say about the market?
Mark Tagliaferri: I look at Hellman & Friedman which set out to raise $13 billion and raised $8.8 billion. As someone said, they have got 25 years of unbroken success, so I think the fundraising has to be taken in the context of the market we are in. To raise $1.9 billion [which was below the fund’s original $2.25 billion to $2.5 billion target] – up 35 percent on the previous fund – I think is a demonstration that investors are committed to private equity and to managers who they believe have the right team, strategy, structure and track record.

PERE:  What are your plans for the UK and Europe?
MT: In the UK, we are looking at backing good teams in specialist real estate niches who want to build up a business and which could be something that goes public in the future. GI invests in asset-based businesses. We buy assets very often with a view to creating a business around those assets. Digital Realty Trust [a data centre provider] and Care Aspirations in the UK are examples of that.

PERE: Given the falls in values, why not invest in plain vanilla real estate deals?
MT:  We have not seen, in vanilla deals, the returns we would expect. As I see it, core prime real estate is trading down quite low again. The Credit Suisse-owned building in Canary Wharf in London, for example, is supposedly going to be sold for a yield in the 5 percent range. If you look at the Broadgate deal [which The Blackstone Group acquired a 50 percent stake in from British Land], that was in the 7 percent yield range. I am not sure we could get our returns from that. 

PERE: GI drew down capital from Fund III to create a US real estate finance company, Ladder Capital Finance. Will you do the same in Europe?  
MT:  Ladder has similarities with what we want to do in Germany. We think real estate-related German financial services such as those dealing with non-performing loans are interesting – the kind of thing Lone Star did in Germany by buying a bank is interesting. This is an investment backed by loans which are backed by bricks and mortar.

PERE: Has GI been contracting or growing in recent times?
MT:  We have added about 14 professionals in Europe and North America, so we are growing. We have taken people on at all levels.

PERE: Back to fundraising, have the terms altered compared to previous funds?
MT:  The terms are the same, but because we have a small number of large investors, they have a lot of leverage over those negotiations. We added eight or nine new investors, which is a 50 percent increase. There are two leading funds of funds groups in there, with Partners Group and Capital Dynamics. They are considered some of the thought leaders in private equity in Europe. They are our only funds of fund investors.