UBS to tap SWFs and European pensions

The Swiss-based bank wants to diversify its capital sources to mitigate the ‘concentration risk’ of its current real estate investment management platform, stating it is too dependent on fresh capital in the US, Switzerland and Japan.

UBS Global Asset Management, which owns one of the largest real estate investment platforms in the world with $65 billion of property, has plans to tap sovereign wealth funds and European pension funds in a bid to diversify its capital sources.
In an interview published in this month’s PERE magazine, new global head of real estate, Tomas Wels, said the bank’s global real estate platform currently had “concentration of risk” because the majority of new investor capital over the last three years had come from the US, Switzerland and Japan. He added that being “so dependent” on capital from three countries was not sustainable, even though in the US it is one of the best-performing core real estate managers.

As part of wider plans to better diversify its capital sources, Wels said UBS Global Real Estate (GRE) intended to tap more into global cross-border flows of capital partly via UBS Global Asset Management’s large sovereign wealth fund client base, which by his own admission UBS GRE had “never really supported or utilised”. Wels said Richard Johnson, who was elevated to global head of business development in December and is based in Hong Kong, is one of the bank’s senior executives charged with attracting more capital from Asia in particular.

“We are now spreading the word with our very large sovereign wealth fund team that we see the opportunities (in Europe) coming in the next two quarters with Asian and Middle Eastern capital advancing,” Wels said. “Therefore, GRE will tap into Richard Johnson’s global business development business and UBS Global Asset Management’s sovereign wealth fund team at the same time to increase this flow of capital into European real estate.”

Only recently, Wels further explained, had UBS GRE taken steps to improve the integration of its various European offices and appointed a new leader, Tilman Hickl. That change was told to staff and some clients in April, and the new business provides products and services to international and domestic investors using “aligned processes”, said Wels.

At the same time as helping sovereign wealth funds, Wels said European pension plans were considered a growth area and potential diversifier for GRE’s capital sources given pensions from various countries had most of their real estate assets held domestically but wished to diversify cross-border. Indeed, just last week UBS announced the formation of a fund of funds for Italian investors managed between UBS’s Multi Manager platform and Italian real estate firm, Prelios.

Wels, a former McKinsey & Company consultant, joined UBS Global Asset Management in 2005 and took over as global head of real estate in December 2012. He revealed he had recently presented the new strategic plan to the UBS Global Asset Management executive committee.

Another important strand to the UBS’s overall strategy includes launching a “wave” of different products over the next six quarters. A “hard pipeline” has been identified including a UK mortgage fund led by Anthony Shayle, who recently became head of global real estate, UK debt. There is also a “soft pipeline” of future initiatives that includes pan-European value added funds as it looks to “go up the risk spectrum” . However, it will not enter into opportunistic investing.

He also said UBS Global Asset Management supported the decision to “globalise” the business, hence the appointment of Trevor Cooke as head of global real estate for Asia Pacific who joined just last month from Queensland Investment Corporation (QIC).

The other plank to the strategic plan is to take over the management of property funds from other companies. UBS GRE believes it has the experience necessary to do this given its Global Multi-Manager and Securities Group took over the management of UBS Wealth Management’s $12 billion real estate fund of funds business in 2010. It has since sold a stunning $4 billion of property fund interests for the platform, which was first established in 2005 and has family offices and high net worth individuals as the underlying investors. The remaining $8 billion of property fund interests will be sold off over time under the watch of Eric Byrne who took over as new head of the Global Multi Manager and Securities Group in April after Roddy Sloan retired.

UBS GRE is one of the largest real estate investment managers in the world and currently manages $21 billion of assets in North America, $22 billion in Europe including $14 billion in Switzerland, and $9 billion of direct assets in Asia, the vast majority of which are in Japan through a joint venture with Mitsubishi Corporation formed in 2000.