Crossing the divide

Raymond Satumalaij left Blue Sky, where he was
responsible for the real estate portfolio, in May this year to join Bouwfonds Asset Management, a subsidiary of the real estate arm of Rabobank. Describing his relationship with the KLM pension fund manager as "more than excellent", he reflects on the move - and on pension funds' struggle to compete for investment managers - in an interview with Shayla Walmsley

Why leave Blue Sky? And why join Bouwfonds?

The main thing was that I'd been almost seven years with Blue Sky. I joined when they were at the start of a transition from direct to indirect real estate investment. That's what I enjoyed most - creating new investment products. I was ready to go on to the next stage.

At Blue Sky, we were a team of two working on real estate investment; now I'm in a team of 17. The scale is completely different.

Setting up funds is a big challenge in the current market. But Rabobank's acquisition of Bouwfonds [in December 2006] made the fund manager part of a substantial network, with Robeco on the investment side but also insurance arms Interpolis and Achmea. It gives a lot of opportunities to the asset management arm. My aim is to set up core and value-added pan-European funds.

It's a relatively young organisation - set up in 2001 - but it has 90 people and €4bn in assets under management. It's still evolving, which gives it more flexibility in changing markets and in adapting to a changing industry. Everything is evolving. It will change in time. You can't get it perfect immediately.

What differences have you seen so far?

Bouwfonds is a bigger real estate organisation. You're talking to different people within the organisation. Everyone has something to say about real estate. But they appreciate experience from the other [pension fund] side.

In contrast to Blue Sky, at Bouwfounds most of the clients have different views on the same topic. How do you deal with it? There is no tailor-made solution. Creating funds means looking for the common denominator.

Now I'm dealing exclusively with real estate as a specialist rather than as a generalist. Bouwfonds is more focused on real estate, Blue Sky on real estate within the broader investment universe.

Blue Sky Group is backed by pension fund money. At Bouwfonds you're concerned with finding clients who share your view. Real estate is also open to other clients outside the Rabobank group. Targeting outside clients is relatively new to the group, but our targets are both internal and external.

Looking back over your career at Blue Sky, what would you consider your greatest successes?

When you work on a small team, there's no such thing as individual achievement. It's a team approach. But the answer is easy - going from direct to indirect real estate investing and achieving an annual return of around 18% over the past five years.
A big chunk of it is due to the market. There's also an element of luck. But we also took investment decisions to establish the real estate securities portfolio, to invest in unlisted real estate and to create the European real estate securities index - even though, at the time, everyone asked: ‘Why index when the market is inefficient?' The five-year performance can compete with the performance of any active European real estate securites manager.

I'd add: shaping a Dutch private fund, establishing a US private fund and a listed European fund, and selecting managers.

What lessons have you brought with you? 

First, know your strengths and weaknesses, but stay humble - while delivering exceptional returns. Second, focus on the downside. Clients don't complain if everything goes well. Make sure you have a process in place for when it doesn't.

At Blue Sky you took a robust approach to fund manager selection, arguing for closer alignment between performance and fees - and that underperformers should face dismissal. Do you still hold that view?

Fund manager selection isn't perfect anywhere, but it can evolve, as we showed at Blue Sky. [Fund managers selected by Blue Sky signed contracts penalties, including firing, for underperformance. Satumalaij argued that pension funds should adopt what amounted to standard practice in the rest of the financial service industry.]
There's an ongoing debate between fund managers and investors over performance and fee levels. There can be a lot of debate even within the company. I've always believed it needs to be clear how you deal with alignment. I still have a strong opinion that absolute fee levels are a bad idea, that there needs to be a combination of performance and fees.

I'm still in the same business and I still believe everyone has to earn through performance. My opinion hasn't changed now I'm on the other side.

Could you expand a little on relationships with consultants and managers? How does it work then and now?

At Blue Sky consultants are a second opinion. Blue Sky will still make the final call. I now have to convince consultants to choose ¬Bouwfonds. The ultimate question is always: why should they recommend you? Having been on the other side of the investment industry helps a bit, but you still have to start from scratch. [Before joining Blue Sky, Satumalaij was responsible for indirect investment at the Dutch builders' pension fund.]

With managers, you need to establish a framework where managers can do what they are good at, without losing control. I've been able to look into the different organisations and have a good feel for what the issues are.

What were your greatest challenges at the fund? Dealing with the regulator?

The main challenge was finding the right products to invest in that met the investment philosophy of Blue Sky as an asset allocator.

And you still had to explain to colleagues dealing with other asset classes why real estate was worth investing in - even after years of excellent performance.

But the KLM pension funds - Blue Sky's main clients - were all financially very healthy. The regulator was always very kind, referring to KLM as an example of excellence.

What main challenges do you see facing pension funds now? 

New real estate fund management organisations are entering the market. The question is how pension funds will attract and keep the right people. In the end, no-one is irreplaceable. Managing resources will play a larger role than in the past and pension funds are already pooling assets to overcome it. The pooling trend will accelerate. Getting the right people in place with the right experience will be a plus in pension funds. It depends how much they're willing to pay for it.