Barings has launched its APAC real estate platform as it moves ahead in its global expansion. Florence Chong speaks to John Ratcliffe and Duncan Robertson
It is a coincidence that global investor Barings has chosen the depths of the global coronavirus pandemic as the time to launch its Asia-Pacific real estate platform. Duncan Robertson (top left), head of Barings’s global business development group and chairman of Barings Asia, says timing is not front of mind – it is all about executing an evolving global strategy. “Our global platform is ready for expansion into Asia-Pacific, so it makes sense to build out the real estate platform to the region now,” he says.
Barings, which sees itself as one of the world’s largest diversified real estate investment managers, has until now been conspicuously absent from Asia-Pacific. “From Barings’s perspective, Asia-Pacific is a natural extension,” says Robertson. “We already have a large presence in the region in other asset classes, but within our global real estate strategy, we have a gap. We have big real estate businesses in Europe and the US, not in Asia-Pacific… to service our real estate clients today, we need to have a global footprint and that means expanding into Asia-Pacific.”
He adds: “We take a local-to-local approach in the markets in which we operate. Our local teams, with strong in-country insights and capabilities, set us apart from other players.” He points out that Asia-Pacific is a key contributor to Barings’s global business, already representing about one-third of Barings’s unaffiliated assets under management. At 30 June 2020, total global assets under management were US$346bn (€289bn).
John Ratcliffe, who joined Barings in June as head of Asia-Pacific real estate, says that Asia-Pacific is expected to continue driving growth, leading the global economy out of a pandemic-induced economic crisis. There are advantages in establishing a property portfolio from scratch, he says. “There are no legacy products to defend, or problems to solve. This gives us the opportunity to watch for emerging trends, then capitalise on seizing those opportunities.”
Ratcliffe is charged with developing the business’s pan-Asian and Australian real estate platform across equity and debt, including the core and value-add strategies that Barings is recognised for in Europe and the US.
Based in the company’s Sydney office and working alongside Robertson, Ratcliffe is responsible for sourcing investment opportunities in the region, putting his initial focus on Australia and Japan, before exploring opportunities in China and other geographies.
Ratcliffe describes Japan and Australia as “natural markets” for Barings, where it can secure “strong risk-adjusted returns and the capability to build and invest our platform”. He says: “It is reasonable to expect that Australia will feature prominently in the recovery in the early stages of growth in Asia-Pacific.”
He adds: “The COVID-19 crisis… has presented excellent opportunities to enter the market.” He is fully aware that pre-COVID competition for assets in Australia pushed down yields to historic lows.
Ratcliffe and Robertson being based in Australia is a coincidence, but their familiarity with the market gives Barings an edge on what is their home turf.
“The [Australian] market is very deep and transparent. It is very mature and provides investment opportunities,” Robertson says. “Ultimately, the goal in Asia is to replicate the successful core and value-add strategies deployed in the US and Europe,”
Ratcliffe thinks there could be “fantastic synergies” to leverage from Barings’s operations in those two regions. The investment manager’s assets under management in the real estate sector, in terms of equity and debt investment, totalled US$45.9bn at 31 March. The bulk of exposure (US$10.9bn) is in the US, with US$4.1bn in Europe. The dominant asset was real estate debt, accounting for US$30.9bn, some two-thirds of Barings’s real estate exposure.
It is therefore unsurprising that Ratcliffe considers deployment of real estate debt to be one of the first opportunities in Australia. “In the current environment, the pull-back of the major banks, particularly in Australia, as they refocus their lending elsewhere, has created an opportunity to bring one of Barings’s core competencies into the Australian market,” he says. “In Sydney, we see already seeing excellent prospects in the real estate debt space.”
Before joining Barings, Ratcliffe spent 12 years with the listed Australian group Challenger, one of the first entrants into Australia’s private real estate debt market. “Some strong opportunities have presented themselves,” Ratcliffe says, stressing, however, the importance of recognising that these are in “very early stages”. He says: “We are taking considered views on relative value and risk across the different opportunities placed in front of us.”
“From Barings’s perspective, Asia-Pacific is a natural extension” - Duncan Robertson
Ratcliffe expects Barings’s first acquisitions to come as the current economic landscape becomes clearer and interim relief measures initiated by governments start to wind down. “We will then have a clearer view of the long-term impacts on occupier demand,” he says.
Ratcliffe maintains an open mind on types of assets and sectors of interest in Asia-Pacific. “As the market moves from current dislocation into the recovery phase, we anticipate excellent opportunities,” he says.
“Retail and office are facing challenges. In the core space there are some fantastic opportunities, particularly in the long-term lease of office. These assets will continue to perform well and, similarly, logistics is performing strongly. There could also be opportunities in alternative sectors – data centres, life sciences and multi-family, as the latter develops in Australia.”
Ratcliffe says Barings will look at value-add opportunities. “When risk-adjusted returns are appropriate, that is an area in which we are looking to deploy capital,” he says. “It is a space in which Barings globally has deep experience and a strong client following.”
Ratcliffe does not rule out retail, pointing out that there are opportunities to repurpose shopping centres into logistics, residential and other new and better uses.
Barings has no immediate plans to launch a dedicated Asia real estate fund, but the company confirms that it will invest on behalf of a number of its existing global funds and from its own balance sheet. Barings is known to invest in real estate on behalf of its parent, MassMutual insurance company, as well as third-party investors.
“A number of [Barings] products globally, both existing and under development, may choose to invest in Asia-Pacific over time,” Ratcliffe concludes.