MIPIM: Fund manager business models adapt to ever-changing capital markets

The business model of the real estate investment management industry is constantly adapting to ever-changing market dynamics and an increasingly diverse investor base, attendees at today’s INREV Cannes seminar at MIPIM were told.

Speaking at the event, Andrew Vaughan, Redevco’s CEO, charted the history of the 20-year-old retail property specialist, which began with one investor and one strategy and today runs 10 strategies for different clients.

To raise external capital today, Vaughan said, a fund manager needs to sharpen its business model and clearly define “who you are and what you do”.

This entailed more work, but the challenge brings greater focus to the company and business opportunities.

The expansion of the company brings more complexity and challenges, but it also brings benefits through learning what investors are interested in, diversifying sources of funding, providing access to larger deals and attracting talent.

Matt Dimond, head of international business development at the real estate arm of Swiss Life Asset Managers, said his company had grown recently mostly through acquisitions.

The Swiss firm initially expanded locally, he said, but 10 years ago went international, with deals in France, Italy, Germany and the acquisition of Mayfair Capital in the UK.

Dimond said the firm is now focusing on partnerships ventures and club deals and is now on the journey of becoming a full-scale investment manager.

Lonneke Löwik, CEO of INREV, who moderated the event, asked if it was likely that managers would become even bigger as has happened in other sectors.

Austin Mitchell, managing director and head of global product and solutions at Nuveen Real Estate, which was the product of a 2013 merger between TIAA and Henderson Global Investors, said there was still a huge amount of consolidation to come.

Dimond said the size of the institutional real estate space had been growing, but the size of real estate managers in relation to the capital markets was still small.

Even as real estate managers continue to grow, “we need small players” and we see small firms creating new ideas and products, he said.

Vaughan said there was room for more players and it is not necessarily good for the sector to have a concentration of mega firms – “else, when something goes wrong, it hits the whole sector,” he said.

Löwik asked if the “need for scale to cater to the need of investors cause challenges like losing focus”.

There’s a risk of “neglecting” existing client and focusing on new clients, Vaughan said, adding that managers needed to aim to provide a consistent service to all investors.

Dimond said there had to be a focus on what you are good at and getting local knowledge rather than offering all services to all.

Answering Löwik’s question on the future and evolution of fund managers, Mitchell said strategies in the future will be more focused on user experience.

Citing WeWork as an example, Mitchell said the shared-workspace provider is evolving from real estate occupier to owner and could very soon become a manager.

“We will see more new entrants coming in to solve/satisfy fundamental problems/user experience”, he said.

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