Deutsche Bank decided to retain RREEF last year after sale talks failed. Now it has been rebranded Deutsche AWM. Pierre Cherki tells Richard Lowe what this means for investors
The sale of Deutsche Bank’s RREEF Real Estate business to Guggenheim Partners looked to be the start of an anticipated second-wave of major consolidation in the real estate fund management industry. It would have followed in the footsteps of the ING Real Estate Investment Management merger with CBRE Investors, which created the world’s biggest property investment manager. Instead it turned out to be one of the largest could-have-been deals since the downturn.
Deutsche Bank performed a remarkable about-turn on RREEF, deciding to keep the business after all. Earlier this year, in what seemed to be the equivalent of drawing a line under the episode, Deutsche Bank made the bold decision to create a new brand under which the real estate and infrastructure investment management businesses – among others – would exist. According to its marketing, Deutsche Asset & Wealth Management “combines all wealth and asset management capabilities of Deutsche Bank to offer a comprehensive selection of world-class products and solutions”.
The rebranding makes sense strategically – Deutsche Bank needed to send a message to the market that it was committed to the business.
Pierre Cherki, formerly co-CEO of RREEF Real Estate and now head of alternatives and real assets at Deutsche AWM, admits that last year people would ask if the decision to retain the business was “a temporary measure or a long-term commitment”. He says the question is raised much less frequently now.
“Everything that has happened in the last six months tells me that the bank is very serious about it – the investment in the business, the support that I have from [Deutsche AWM head] Michele Faissola,” he says.
When asked what the rebranding means for the real estate business, he says nothing directly other than a closer association with the parent company. “The focus since the middle of last year was on how we could leverage more being part of the bank,” he says.
“One of the questions that was raised was the branding and how we can be closer to Deutsche Bank. Incorporating Deutsche in our name and having the Deutsche logo on our business cards, it clearly gave the feeling internally and externally that the bank wanted to keep the business, invest in the business. Normally when you put your name on the front door it means you are serious about that. So that was an important sign.”
But there is also an intention to retain the RREEF culture. “We have been working as an investment team for the last 40 years and there are a lot of things that we do, a lot of fiduciary responsibility to all the clients that are critically important, and we certainly want to maintain that,” Cherki says. “But if we are part of the bank we want also to benefit from the vast network, the relationships that the bank has around the world.”
It is not just the aborted sale that has raised question marks over the real estate business.
The company has seen a number of senior professionals leave the stable recently. Last year there were a number of departures, including: Neil Thassim, head of real estate in Asia; Paul Keogh, CIO for property in Asia; David Maki, head of North America capital markets; Drew Fung, head of debt investment; Kurt Roeloffs, global CIO. Chris Papachristophorou and David Brush, who headed up RREEF’s global opportunistic real estate platform, also left.
“It’s a living and breathing organisation,” says Cherki. “We make decisions where we want to focus, what are the priorities of the business, and that does impact people. When you look at where we are in the economic cycle, coming out of the financial crisis, coming out of the sales process last year with the bank, it’s a natural time for people to ask themselves questions and to take decisions.”
He adds: “Clearly, we are investing in the business. We are in the process of hiring in places where people have left or where we feel there is a priority for the business to grow.”
The departure of Papachristophorou and Brush does not necessarily signal a complete move away from opportunistic strategies, although Cherki admits that the lack of risk appetite among investors has influenced the focus in recent years. “We look at what our clients want, and clearly the focus of the clients has been on the core side,” he says.
At the end of 2011, RREEF Real Estate published a white paper on ‘The Case for European Opportunistic Investing’, which prompted widespread interest and was well received by the real estate industry. Cherki admits that the timing of the paper was slightly unfortunate, given the way the European sovereign debt crisis developed during 2012.
“Maybe it was a bit early, but we started at the time to see signs why it made sense to take more risk,” he says. “A lot of what was said in that research paper is still accurate today.”
But Cherki is wary of putting too much weight behind terms like ‘opportunistic’, ‘value-add’ and ‘core-plus’. “I don’t like the definitions,” he says. “I would say, ‘take more risk’.
“In the past, what very often happened is that it was more based on the returns you needed to generate. Even if the risk was very high, you would call it value-add because you were getting low-teen returns. I think we try to be a bit more intelligent about it and try to explain to our clients the risk profile. And I think investors understand that target returns should be lower. It’s very difficult to generate 20%-plus return. You would need to take too much risk and the debt levels are not available anymore.”
Cherki is seeing an increase in risk appetite. “It is not everywhere, but we are seeing that,” he says.