Roundtable: Needed skills are lacking in US market

The game has changed and many of the players now don’t have the skills to win. Such was the sentiment among the experts who gathered last month in New York for PERE’s US real estate roundtable discussion.

A view that too many fund managers are ill-equipped to work through new market challenges was one of many topics covered by the roundtable participants, who included Jack Foster of Franklin Templeton Real Estate Advisors, Edward Casal of Aviva Investors, Gary Simonetti of TIAA-CREF Global Real Estate and Howard Fields of Capital Dynamics. All the participating firms commit capital to private equity real estate funds.

A feature article based on the discussion appears in the October issue of PERE magazine. 

Aviva’s Casal said during the discussion that restructuring and finance skills are missing at too many fund managers. “There are a lot of people working in these funds who have experience on the upside of the cycle,” he said. “But there isn’t enough experience dealing with problems – negotiating with banks, restructuring transactions. Many of the professionals at private equity real estate funds are lacking corporate finance 101 valuation skills. . .”

Franklin Templeton’s Foster pointed out that firms that lack strong asset management capabilities are going to have a hard time thriving as the recession fades. “That’s never going to get old in our industry,” he said. “As we come out of this, asset management skills are critical.”

TIAA-CREF’s Simonetti warned that “a lot of private equity shops are transferring some of their acquisitions people to asset management. These are people who may have only been working for a few years. In our experience as direct investors, we’ve seen that asset management is really a skill that is acquired over cycles.”

Tapping the talent of a firm’s investment professionals becomes challenging when headcount is being slashed. Capital Dynamic’s Fields described having visited “managers that had teams that went from 30, 40 people down to five to 10 at most. You know that they’re not doing what they used to do. If they’ve let their acquisitions folks go, that probably tells you they’re out of the investment business.”