Nori Gerardo Lietz, Partners Group’s real estate strategist who is bowing out of the private equity real estate group, wrote a research piece two years ago that is still worth reading. In I Will Survive she described how a very painful market correction, exacerbated by gearing, was causing a breakdown in trust between investors and investment managers. She predicted that a result of this would be a shake-up of real estate investment managers, starting with the banks that had already in 2009 “published their obituaries”.
Property markets have since recovered somewhat and this is reflected in a modest rise in assets managed by the majority of 130 managers surveyed by Property Funds Research. Yet a reshuffling of assets is clearly going on, of the kind Gerardo Lietz predicted, with 20 or so managers experiencing some kind of change in ownership.
They include outright sales, with the very biggest – ING REIM – put up for sale by its weakened parent bank and about to be folded into CB Richard Ellis Investors. Independent managers have embraced strategic partners to tap their distribution channels and balance sheets, notably AREA Property Partners and Europa Capital. JER Partners’ transfer of its European funds to LaSalle Investment Management looks like what Gerardo Lietz called “doing the right thing”, with capital moving from a firm perceived to have performed poorly and unable to raise new equity to one perceived to have performed well. LaSalle, focused on European expansion, inherits a lot of problems, but also access to 48 mainly US pension plan LPs.
In the UK, Invista REIM’s obituary is the one taking longest to write. The seed was Lloyds Banking Group’s takeover of HBOS in 2008/09, which included 55% of quoted fund manager Invista. Then, last October, Lloyds decided to transfer Invista’s contract to manage £2.3bn of the bank’s funds to Scottish Widows Investment Partnership and sell Invista within a year.
It was a logical move for Lloyds, which owns 100% of SWIP and 55% of Invista. It risked destroying value in Invista, but kept 100% of the value of the rest. The surprise came when Invista shareholders rejected the Invista REIM management’s client-backed MBO, then value destruction set in.
Whether the MBO failed because the trusts backing it wanted guarantees Lloyds would not give, or because the price was chipped, the last gasp is Invista becoming part of the food chain for two next-generation investment managers: Internos Real Investors, set up two and a half years ago, and Chris Bartram’s Orchard Street Investment Management. In the US, Bartram, and Internos’s Jos Short and Andrew Thornton, would be called ‘seasoned veterans’, so the mandates are in good hands. And how refreshing to see new entrants making headway against established peers.