Standard Life takes the slow and steady route to success


Two years into the job, David Paine is moving the Scottish firm into new areas. By Alex Catalano

David Paine:
David Paine: “I took the view that we needed
to invest in some key parts of the business.”

Standard Life’s track record stretches back to 1825, so it should be no surprise that its real estate people at Standard Life Investments have also clocked up some long service records. David Paine, the current head, joined 31 years ago as a graduate surveyor; his predecessor was there 28 years, and the 60 professionals on the team have been there an average of eight years. Not much turnover, then.

This doesn’t mean Standard Life is a sleepy place. Other fund managers rate it highly. “A very savvy, traditional investor,” says one. “Its approach is to take big, considered views. They ask a lot of questions, the right questions, and make very good decisions.”

Paine has now been at the helm for two years, which he has spent retuning the organisation. “It is critical as the scope of our business develops that our operating platform – the systems and processes – remain fit for purpose,” he says. “Our investors expect nothing less. It’s dull, it’s boring, but it’s absolutely necessary.”

Funds reviewed

Standard Life’s suite of 19 funds has been reviewed to ensure they are structured in the right way for an evolving market. The team has also been overhauled. “We needed to invest in some key parts of the business. So we have built upon our research, tax and structuring capability as well as the team in Paris and reinforced our team in Canada, an important market for us,” Paine says.

Paine is keen to counter the perception that parental money is still a large part of his £12bn book. “70% of our real estate assets under management are classified as third party,” he points out.

Last year Standard Life was placed fifth in the Property Funds Research league table of UK real estate investment managers; in 2011 it was the 15th largest in terms of European assets under management.

ZA second Canadian real estate fund is in the pipeline, targeting an initial $200m. Unlike the existing Canadian fund, this new one will include a bit of leverage and be open to international investors.

Paine is now looking forward to expanding – but at the company’s measured and deliberate pace. “We are seeking out those opportunities which are likely to deliver on a sustained basis for our clients,” he says.

Two new areas are also in Standard Life’s sights. “We see an opportunity to expand our offering to include real estate debt and our geographic footprint beyond Europe and Canada. We have chosen to focus on Asia/Pacific,” says Paine.

Real estate debt is an obvious choice, particularly given that Standard Life already has a 30-strong team in Canada lending on commercial real estate, the bulk of it off the insurer’s own balance sheet.

“We are focusing on senior debt initially, and in the UK, but we see a broader opportunity set in the medium term,” says Paine. Two of the Canadian lending team have come over to help build the right proposition. “We’re acutely aware you have to be able to show you have the platform in place, that you have the right people in place,” he notes.

It’s taking time: both M&G and L&G’s debt platforms are up and running and US insurers MetLife, Pricoa and Cornerstone are out lending. But rushing is not the Standard Life way. “Standard Life might move slowly, but it goes in the right direction,” says a rival fund manager.

Asia is being approached with similar deliberation. Mike Hannington, who managed Standard Life’s UK Pooled Pension Fund, was appointed head of international real estate in 2011, charged with establishing the new business. Paine says: “Our challenge is to set up a credible platform. That’s something you cannot do instantly – we are in discussion with partners who could help us get that local market knowledge while building out a fund management/investment capability that can deliver in the same way as in the UK and Europe.

The parent company is expanding in Asia and has a joint venture with financial giant HDFC in India and a strategic alliance with Japanese bank Chou Mitsui.

The missing part of the jigsaw is the US. “It’s a question of capacity, we have decided to focus upon Asia/Pacific in terms of developing our real estate capability,” explains Paine. For now, Standard Life’s real estate team is tackling the US market via a listed strategy, with an analyst in Boston who focuses on US and Canadian REITs.

Meanwhile, the parent is gaining traction Stateside: last year it teamed up with US financial services giant John Hancock to offer its award-winning Global Absolute Return Strategies (GARS) Fund to US retail investors.

Core Europe focus

Standard Life was an early entrant into Europe, launching its European Property Growth Fund in 2001. It holds €1.3bn of continental real estate, in the fund and segregated mandates. “The focus now is on core Europe – France , Germany, and Scandinavia,” says Paine, adding: “In the short term the focus is on active asset management, particularly in the most challenged markets.”

The fund was refinanced last year, securing a €150.7m senior debt facility from Crédit Agricole. “That created a platform for us to work from in what has been and continues to be a very challenging marketplace. Our task is to identify those pockets where we think we can get better returns,” he notes.

Dublin tops the house list on a three-year view, but Paine isn’t rushing in. “While on paper the pricing looks attractive, when you try to execute, the recovery story is already being priced in,” he says. And he would like to buy more in Scandinavia. “The asset pool is held among a small audience so accessing the right stock is key,” he says.

A segregated mandate from a North American client is going into some slightly more adventurous European assets: Standard Life invested £36m alongside Helical Bar to co-develop the Europa Centralna retail park and shopping centre in Gliwice, Poland. An office and retail building in a prime Copenhagen location was bought for repositioning, as well as a small building in Paris.

Standard Life’s Select Property Fund, launched in 2005, is an interesting beast that invests worldwide. Its holdings range from stakes in Hong Kong and Indian property companies to Australian offices and Polish logistics, and it recently made a healthy profit selling a couple of office buildings in Brazil it had bought in 2010.

“We have developed the expertise to manage a hybrid fund, where you marry direct with indirect listed and unlisted real estate,” says Paine. “It is an early example of blending the expertise in our real estate team and offering a truly global exposure.”

Back in the UK, Standard Life’s open-ended retail funds suffered, like all others, as investors took flight post-crisis. But they’ve weathered the storm and Paine believes inflows will pick up: “We feel advisers and clients at the wholesale end will start to make some of the same choices that institutional clients and consultants made at the end of last year.”

Attractive returns

For the UK, the house view is that London and the south-east still offer the most attractive prospective returns. “We are looking beyond the ‘trophy’ asset to find those where there’s some work to do, where we can deploy our expertise, asset management or development skills to create value. We also rate the best quality retail centres, which are still a buy in our view,” says Paine. “We remain cautious about secondary assets. We feel there will be more assets released, creating further pressure on pricing.

“Growing the business over the last year in tough economic conditions has been a challenge. There are lots of moving parts,” he concludes.

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