Paris-based BNP Paribas REIM is aiming to boost its assets under management to €30 bn under its new CEO Barbara Knoflach.
BNP Paribas Real Estate is on a roll. In early March the Paris-based firm announced that its advisory business generated a record level of fee income in 2015 while the group as a whole reported the best year in its existence, thanks to organic growth and the impact of its development plan. According to the group’s CEO Thierry Laroue-Pont the advisory business is on track to strengthen its offering after creating two specialty platforms in 2015 in logistics and retail investment as well as a property management outsourcing business. It also has big plans for its investment management arm, BNP Paribas REIM. ‘Our ambition in investment management is to reach €30 bn in assets under management and to consolidate our position in the European top five,’ Laroue-Pont said at the earnings presentation.
That would mean an increase of amost 50% from the current €22 bn. But characteristically, Barbara Knoflach, the new global head of BNP Paribas REIM, seems undaunted by the challenge. ‘We are already bigger than we look,’ she said with a big smile during an interview at the latest edition of Mipim in Cannes. The company is well-positioned to grow, she added. ‘We focus on all segments and are growing our platform and pan-European offering. We aim to expand our pan-European fund business, but also our separate mandates, joint ventures and club deals. What I see is a very nice starting place for a new European player with substantial weight.’
The big are getting bigger and the middle ground is coming under increasing pressure, Knoflach concurred. ‘We are seeing that consolidation is continuing. In Germany, two thirds of the open-ended fund managers have been squeezed out. The opportunities differ in terms of how supportive the distribution network is.’
In that context, BNP Paribas REIM draws on a ‘huge’ distribution network, Knoflach noted. ‘We see good opportunities to grow in both ways, by M&A and organically, but now is the time to grow organically.’
European perspective
At present the investment management business is fairly equally divided between comingled funds, segregated mandates and club deals, Knoflach said. ‘About 20% of the business focuses on private investors and the other 80% on institutional clients. We see potential to develop individual strategies and a broader European perspective for French (but also other European) clients. In Germany we already have a strong platform thanks to our Spezialfonds model [a special vehicle for institutional investors ed.]. We want to be the asset manager of choice for more European investors and would like to bring a more (distinctive) European flavour in terms of offering for the international investment community.’
Austrian-born Knoflach joined the French company in August to head a team of 300 employees in eight countries. She draws on a 15-year career at SEB Asset Management, including a decade as CEO and was named Woman of the Year by Cash.Gala in September last year for her achievements in managing core and core-plus income-producing products. Cash.Gala is a German initiative which issues annual awards to leading financial industry professionals.
In the coming years, Knoflach aims to transform BNP Paribas REIM from a country-focused investment manager to a player with a pan-European offering. ‘We are very good at producing local products for local clients but the aim for the coming year will be to broaden our offering so that we are also looking more intensively at European products.’
At present, the French banking group accounts for about a third of BNP Paribas REIM’s clients but Knoflach is keen to expand beyond this captive client base and attract more third-party capital. ‘We aim to expand into other distribution channels. In that sense, the bank is always helpful in opening doors.’ That also means tapping into the requirements of high net worth individuals, she
conceded. ‘We want to do more and expand our existing relationship with the BNP Paribas banking network. There is enormous potential to expand our real estate services and we are working on creating a much better and larger platform.
‘We already have country focused funds but we also aim to offer pan-European funds and specialised funds (for institutional investors ed). We also want to do bigger deals in the joint venture business. So far we have only done pan-European club deals with French and Italian investors but this is a good starting point.’
Knoflach claims European real estate in general and BNP Paribas REIM in particular are currently in a ‘sweet spot’. The investment manager offers several pan-European strategies including its Next Estate Income Fund II (NEIF 2) which was launched in 2014 and is due to close in the second quarter of 2016. Backed by French, Italian, Spanish, Irish and Belgian insurance companies and pension funds, NEIF 2, invests in key Eurozone offices and is a pan-European SICAV-SIF based in Luxembourg.
NEIF 2 has an annual distribution target of 5% and a total return objective of 7%. The fund’s approach is based on cities rather than countries with a goal for a minimum of 50% of the fund to be invested in core and core-plus offices in Germany’s top 5 markets, as well as in the Paris region. The remaining 50% can be invested in other key cities in the Eurozone such as Milan, Madrid, Brussels, Amsterdam, Dublin and Vienna. The fund is a pure core to core-plus play for offices in the main cities in continental Europe. London is not on the list, Knoflach said. ‘This is a specialist fund that is exclusively euro-denominated. That was a prequisite for the French and Italians. Investors like a simple and clear strategy.’
Successor fund in the offing
Knoflach has already set her sights beyond NEIF 2 and is plotting an even bigger successor fund of €1 bn, including gearing, with a similar investment remit. The strategy will be similar but may be structured as an open-ended vehicle to attract German investors. ‘That idea is in the thinktank.’
A new pan-European logistics fund is also on the cards, she continued. ‘It will mainly target pension funds and insurance companies and it will be a core and core-plus fund that also invests in markets such as Germany, France and Spain. We hope to raise around €300 mln in equity which, with leverage, should give us around €500 mln to invest,’ she added. The first closing is expected to be in the first quarter of next year. The investors in both NEIF vehicles comprise pension funds and insurance companies, Knoflach said. ‘Although from several nationalities, they are a very aligned group with the same needs and expectations. Our vehicles offer the transparency and the clear strategy they require.’
In terms of seed investors, the first NEIF fund, which was launched in 2010, was something of a breakthrough for BNP Paribas REIM, she said. Some were first-time real estate investors but a significant number have returned for NEIF 2 and the average commitment has doubled to €20 mln since the initial fund. ‘That is the nicest compliment you can get. We started the first fund with seed money and minimum outlays of around €10 mln. Later in the stage, we started receiving higher tickets and we are now discussing commitments in excess of €50 mln with investors.’
From country club to multiple strategies
The first two NEIF funds exclusively targeted European investors, but Knoflach is keen to open up investment vehicles to first-time Asian investors. ‘Next time we will be opening up to a broader investor group to comingle European, Asian and North American investors.’ While a record amount of dry powder is available for investment in European real estate, Knoflach claims her company is well-positioned to actually invest the money. ‘That is key. We’re not keen on just getting commitments. So far we have been pretty successful, we have bought assets in Germany, France, Italy, Luxembourg and Ireland. That’s what we want to continue to do.’
At the end of last year year, German insurer The Gothaer Group mandated BNP Paribas REIM Germany to build up a €600 mln real estate portfolio across Europe. The mandate is part of Gothaer's plans to boost its real estate exposure to around 10% of its total portfolio in the medium term. Commenting on the appointment, Knoflach said most of the bigger investors want separate accounts to focus on their own strategy. But she is also keen to open up club deals to new players and create a pan-European vehicle. ‘At present, our club deals are country clubs. I’d like to open them up a little bit and comingle French and German clients for example for one or multiple strategies.’
Knoflach is also targeting new business from outside Europe, in particular the Middle East. The firm already has an asset management mandate for ADIA, the Abu Dhabi Investment Authority, but is now also hoping to attract family funds with allocations in excess of €100 mln. ‘There’s a very high interest in investing in Europe. Most of that interest is for Germany, but we also see interest in other countries. We have received several mandates in the last six months.’ In addition, BNP Paribas REIM aims to enlarge its footprint in Asia, she said. ‘We will start distributing our third NEIF vehicle in South Korea. South Koreans like to go abroad and like this type of comingled fund.’
The mix of record low bond yields and interest rates against a background of sustained geopolitical and macro-economic pressures is building a strong case for real estate, Knoflach said. ‘Investors like hard assets. But,’ she added, ‘in terms of pricing, it feels like we are at the top. It’s hard to bring intelligence and experience together. That’s the challenge.’
For BNP Paribas REIM, it is a unique selling point to be part of a broader European real estate group, she claims. ‘This provides us with a unique network. We gather information from all sides, from property development to management. Of course, we have Chinese walls in place, that is a must and we must definitely strengthen that further.’
Being a reliable partner is key to closing a deal, she said. ‘Sellers are not prepared to do a lot of chasing or renegotiating at the end of the deal. They won’t tolerate that. What they want to know is that you are reliable and that you will stick to the original deal and execute on it. Personally I’m very glad that this has become the normal way of working again. That a handshake is still a handshake and that a letter of intent is precisely that. That’s why Blackstone has become one of the best performers. They have access to capital and they are able to execute. They are very focused and have a reputation for that. That has made them strong.’
BNP Paribas REIM invests in all sectors, but offices accounts for 56% of assets under management. The firm is also strong in retail and residential, is building a healthcare arm in France and is seeking to grow selectively in hotels and logistics. Thanks to the firm’s development arm, Knoflach’s team also has access to potential new product. ‘We need to be cautious and, again, ensure that Chinese walls are in place. But the two areas could work well. There is a lot of appetite from investors for build-to-hold strategies. Development offers a better entry in terms of pricing and is a nice way to grow.’?
PERSONAL PROFILE
Austrian-born Barbara Knoflach joined BNP Paribas REIM as CEO in August 2015. Knoflach was CEO of SEB’s asset management division from 2005. Before that, she was managing director of SEB Investment. She joined the SEB Bank group in 1994, where she played a key role in establishing the closed-end real estate fund and real estate leasing areas in the first few years.