Fund managers: CBREGI poised to seize ING REIM’s world champion title

CBRE will be dominant property fund manager globally after $940m takeover, writes Jane Roberts

ING Real Estate Investment Management retains its top spot as the world’s largest property investment manager, but barring an unexpected left-field deal, the name at the top next year will be CBRE Global Investors. CB Richard Ellis’s $940m, game-changing acquisition of ING REIM is slated to be completed in September, after which it will be CBRE’s world map, not ING’s lion, that dominates institutional fund management. It is worth noting that CBREGI’s assets under management won’t simply be the  sum of the numbers in this year’s table, as Property Funds Research’s data for the fifth Global Property Fund Management Survey is based on assets under management as of December 2010: since then, ING has sold part of its ING Clarion US business to the local Clarion Partners management, backed by hedge fund Lightyear Capital, for $100m.

The €15.9bn of managed assets Clarion has acquired are about half of ING REIM’s US business, while CBRE is buying Clarion Real Estate Securities. So, at around €78bn of assets managed, the merged CBREGI business will still be well ahead of second-placed Brookfield Asset Management. But it is not clear that Brookfield’s €65.6bn submitted figure all relates to assets managed for third parties, rather than assets owned by its parent company’s shareholders. A better comparison, which clearly shows CBREGI’s dominance, is with third and fourth-placed UBS Global Asset Management and RREEF, which each manage around €43bn of assets.

In Europe, the merger of ING’s funds and 52 separate account mandates with CBRE Investors’ funds and 59 separate accounts will create a €37.3bn powerhouse, challenging AXA REIM, whose €39.7bn of European assets managed are less dominated than they once were by property held for in-house insurance group clients (ING’s three largest clients are ING Insurance, PGGM and APB). AXA is also very much a European rather than an international business, although it has an embryonic Asia business and expects to take the first steps into the US this year. Third-placed manager in Europe Aviva Investors has been hoovering up European pension fund mandates – particularly in its rapidly-growing multi-manager business. Last year it took over one of Henderson Global Investors’ funds.

Recovery boosts asset values

The value of the top 100 firms’ total assets managed has risen 18% since last year’s survey, from €930bn to nearly €1.1trn, as property values have recovered. Overall assets under management reported by all 130 increased by 15% compared with the returns from 138 managers in 2009. More US firms participated this time and the share of US assets rose from 36.4% in 2009 to 42.9%, while the share of European assets fell from 50.6% to 44.9%. A handful of big managers did not take part in the survey this time, notably Credit Suisse and JP Morgan Asset Management. According to the last Europroperty/INRE survey, the latter managed €28.95bn of assets, €24bn in North America, while Credit Suisse had €28.2bn, mainly in Europe.

A majority of managers reported rises in assets managed, but a significant number reported lower numbers due to property sales or writedowns. One of the biggest in the latter category was Morgan Stanley Real Estate, which slipped from fourth to seventh place, although the US bank is still Asia’s biggest property investment manager.

Few of the 130 managers are truly global, with large businesses in Europe, Asia and North America: LaSalle, Pramerica, Morgan Stanley, UBS, RREEF and Invesco Real Estate stand out. Invesco rose from 19th to 12th in the table, partly thanks to last year’s acquisition of AIG’s Asia asset and fund management arm, which manages $5.4bn of assets. Invesco emerged in good shape from the financial crisis and has taken advantage of weakness exposed by the fallout to grow via mergers and acquisitions (see table).

Blackstone builds its platform

Blackstone also seized a chance to grow in Asia last year, buying $2bn of assets formerly managed by Bank of America Merrill Lynch, but these aren’t reflected in this year’s table. According to Blackstone real estate group co-heads Chad Pike and Jonathan Gray: “We are already the largest opportunistic real estate investor in the US and Europe. This gives us a substantially larger platform to bring success to our limited partners in a region where we see major future growth.” Consolidation among property investment managers, big and small, has been picking up, with at least 20 deals involving strategic changes in ownership in 2010 and 2011. Investment bank Berkshire Capital has advised on more than 30 real estate mergers and acquisitions in the past 10 years. “We have seen a pick-up in interest in real estate investment management merger and acqui-sition talks,” says London-based partner Bomy Hong.

The last real estate merger the firm helped put together was acting for National Bank of Australia when it acquired 35% of AREA Property Partners in March. Hong identifies two broad sets of sellers: “Independent investment managers and parent-owned real estate divisions. AREA, a mainly opportunistic private equity fund manager that manages about €10bn of assets, mainly in the US and Europe, is a sizeable example of the first and ING REIM of the second.” Parent ING had to sell its fund manage-ment arm to help repay €10bn of Dutch government aid given in November 2008, after it sustained heavy losses on property loans. AREA (which did not take part in the survey this year) was not a forced seller, but its founder-managers decided to sell a minority of equity in order to expand. They have not taken any money off the table and plan to reinvest the proceeds to build up the business, rather than for liquidity.

“Sellers have different motivations, but the theme we are seeing is real estate investment managers taking strategic partners to help  grow their business,” Hong says. “Sellers might want access to broader third-party distribution channels, or to tap international pools of capital for fund raising, which could lead to a cross-border transaction.” This was a factor for AREA, as NAB has strong distribution in Australasia. NAB also provides acquisition capital to expand globally and potential for co-investment capital “which is a key factor for some real estate fund managers; they need it in their funds, so finding a strategic partner that can provide co-investment capital is a plus”.

On the other hand, the buyers hope to meet or tap increasing investor demand for property by expanding their real estate platforms; this was the case when US company Rockefeller Group acquired European fund manager Europa Capital. Rockefeller is expected to invest significant-ly in any new funds, which should make it easier to raise new vehicles in a difficult equity raising environment. However, independent fund managers with good track records continue to be able to raise equity or attract new mandates. Orion Capital Managers, owned by its three founders, raised its latest fund in 2008 and remains resolutely focused on performance rather than increasing assets under management (see profile, June issue). Investors want stable, reliable managers, but that doesn’t necessarily mean big firms, and they don’t want asset gathering for the sake of it – or to pay fees skewed towards capital under management rather than individual strategies. Grosvenor chief executive Mark Preston told Real Estate Capital this month: “We want to generate good returns for investors and to beat our benchmarks, and as night follows day, if we do that, we will grow.”

 

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