LaSalle IM expands separate accounts business on the Continent

LaSalle Investment Management is steadily expanding its separate accounts business on the Continent.

Over the summer, the Chicago-based investment manager won a mandate to invest in real estate in the eurozone on behalf of Swiss pension fund Testina which represents public sector employees in the city of Zurich and Migros staff among others.

The investment manager, which is part of global advisory firm JLL, has also recently landed mandates to invest indirectly in real estate via fund vehicles on behalf of two Italian institutional investors, the pension fund for the postal sector Poste Vita and Inarcassa, the pension fund for engineers and architects.

LaSalle Investment Management has traditionally had a strong position in terms of separate accounts in the UK but is now steadily growing its separate account business on the continent. In 2013 it won a €500 mln global investment mandate from Germany’s largest pension fund BVK, marking a first for both parties. The €55 bn Bavarian umbrella pension scheme acts on behalf of self-employed professionals including doctors, lawyers and architects.

Separate accounts are a growth part of LaSalle’s business, the company's European CEO Simon Marrison told PropertyEU. ‘They have traditionally been a big feature in the UK but the concept didn’t exist (until 2001?) and have only recently become a feature on the continent. We can only see that growing. German investors in particular prefer to invest on their own, preferably via a vehicle with a KVG licence. They like to have a little bit more control over their destiny and their investment partners.’

Separate accounts and club deals have gained significant ground in recent years, primarily at the expense of pooled funds. The reputation of these structured vehicles was battered in the aftermath of the global finance crisis due to massive losses incurred by excessive leverage.

‘We’re seeing appetite for both separate accounts and pooled vehicles,' noted LaSalle IM's global CEO Jeff Jacobson. 'Since the Global Financial Crisis, some people decided that funds were terrible and that they want control. If an investor is big enough and control is important, they may be able to execute a separate account strategy or may be interested in clubbing together with like-minded investors, but people and circumstances change. That is true just as much for club deals or joint ventures as for fund vehicles.'

Some investors don’t necessarily start by wanting a separate account, they are simply interested in attractive deals, added Jon Zehner. ‘What is beginning to happen is that individual deals may morph into separate accounts and other things in some cases. This type of one-off deal approach to investing is a way of doing business that’s new to us, and most of our competitors as well. We’d be lying if we said we have it totally figured out, but it’s an interesting dynamic and a new phenomenon post-GFC.’

A recent report by fund data provider Preqin revealed that capital invested in private real estate separate accounts reached an all-time high in 2014. In total, investors awarded some $17.8 bn (€16.6 bn) to 45 private equity real estate separate accounts throughout 2014, the highest annual amount on record. This is up from the $16.1 bn awarded to 48 real estate separate accounts throughout 2013. Indeed, investor appetite for separate account use has been growing steadily in recent years, with 29% of real estate investors globally looking to invest in separate accounts as of the end of 2014, compared to 21% of investors as of the end of 2011.

Nevertheless, Jacobson also sees fund vehicles returning to respectability. 'The pendulum swung in one direction with an emphasis on control after the GFC, but it is swinging back towards a more balanced and nuanced assessment of the optimum ways for different investors to access the real estate market.’

This is particularly true when investors seek to access new sectors or invest cross-border, he added. ‘You need to get to a certain scale for a separate account structure to work, particularly with a cross-border mandate given the costs, complexity and need to obtain diversification.’