New York Life, the investment management business of US insurer New York Life, has purchased a 40 percent stake in Tristan Capital Partners, one of Europe’s best-known private equity real estate businesses.
The US insurer, which is making the acquisition through its European asset management firm Candriam Investors Group, has existing real estate investment exposure through New York Life Real Estate Investors, which manages more than $49 billion of assets. However, that business is entirely focused stateside and primarily in property debt products and listed securities, with an open-ended core fund representing the lion’s share of its real estate equity exposure. Candriam’s investment in Tristan represents its first sizeable commitment to private real estate equity investments as well as its first in Europe’s property market.
The purchase price for the stake was not disclosed, but Tristan’s founder Ric Lewis said the firm was valued on a multiple of EBITDA in the 6x-9x range, the expected range for a real estate investment management business based on net management fees after costs and incentives. No house carried interest was sold, he added. “They’ve only invested in the entity, the management company and operation.”
As part of the deal, Candriam has first option on any future stake sales.
“This isn’t a recap, this isn’t a dividend plan, this isn’t a sale of the business. We just muscled up to be stronger for the future and we’ve doubled down to bet more on ourselves.” – Ric Lewis, Tristan Capital Partners
Tristan’s founder Ric Lewis said the deal was the culmination of an approximately two-and-a-half year strategic process that started in 2015 with the hire of private real estate capital advisory firm Hodes Weill & Associates, aimed at replacing its minority shareholder, the German insurer Gothear Group, which had owned 15 percent of the firm.
“They realized that financial regulation in Germany meant capital reserve ratios would prevent them from making more investments in funds which deploy leverage,” Lewis recalled. “They’d had a great ride, made a good multiple on us, but had become non-strategic. They were taking dividends but couldn’t invest in our products.”
Candriam, on the other hand, is expected to co-invest in Tristan’s funds, starting with a €50 million commitment to its core-plus offering, Curzon Capital Partners 5. The initial €1 billion fundraising target for that vehicle is on the cusp of being reached, Lewis confirmed. “We’ll be treating their general account and extended client base as new and potential clients.”
However, Tristan’s board will continue to include three of the home team: Lewis and colleagues Ian Lanning and Cameron Spry. The two seats previously occupied by Gothear executives will now pass to Yie-Hsin Hung, New York Life Investment Management’s chief executive officer, and Naim Abou-Jaoude, the CEO and chairman of New York Life Investment Management International.
Lewis stressed that independence, autonomy, investment management and process remained the same. “This isn’t a recap, this isn’t a dividend plan, this isn’t a sale of the business. We just muscled up to be stronger for the future and we’ve doubled down to bet more on ourselves.”
That bet will start in the form of substantial capital reinvestment from the proceeds of New York Life’s investment. Lewis told PERE that of the money received, 75 percent would be used to buy Gothear’s shares, its co-investments and its shares of promotes as well as pay various taxes. Further, of the remaining 25 percent, 10 percent would be set aside for distributions to shareholders – none of which would be payable for at least two years. “We’ve used it as a retention program,” Lewis said. “It’ll come out over time, but we’re betting on ourselves, even though that wasn’t a requirement of the deal.”
Tristan’s stake sale is the latest in a series of merger and acquisition deals to have occurred in the European private real estate space in recent months. In December, Principal Global Investors, the asset management arm of Principal Financial Group, also expanded into Europe with the purchase of Internos Global Investors, a property investment manager with €3 billion of assets under management.
Later that month, Patrizia Immobilien, the German property manager, acquired Rockspring Property Investment Managers, a longer-established business with €7.8 billion on its books. Both deals constituted complete sales. Lewis said: “They sold their companies, we didn’t. We strengthened our balance sheet. We’ve more muscle now for the future.”