Markets to enter new neutral interest rate phase, says Barings’ Europe chief

‘A lot will depend on the data we’ll see over the next two quarters but, in the context of recessionary indicators, central governments and central banks will not be so slow in bringing interest rates down in an effort to stave off a deeper recession,’ he told PropertyEU in an interview. ‘I don’t think interest rates will be down to where they were before but the markets will find a new neutral level for interest rates,’ he added.

Pink is a real estate veteran, having spent 30 years in the industry including over a decade at Barings. He started his career at CBRE Investment Management and in 2005 joined a new start-up manager – Protego, which was acquired by Cornerstone in 2010 and rebranded as Barings in 2016. He landed the top job in early October when he was appointed head of European real estate following the retirement of Charles Weeks. Alongside his new role, which focuses on investment, capital formation and strategy, Pink has maintained his existing responsibilities as head of real estate portfolio management Europe and chair of the European investment committees, at least for the near future. His long time colleague James Salmon has also been promoted to the newly created role of chief operating officer, European real estate.

‘Salmon and I were part of the team that started the Protego business from scratch and later as we commenced the build out of the Barings platform in Europe we had a limited legacy portfolio, so we were able to integrate distinct strategies in the business with very limited overlaps,’ Pink commented. ‘While we have been very successful in executing those strategies, the past few years have been more challenging, largely due to a general market disruption,’ he added.

Barings managed to deploy significant capital through the pandemic but has not invested much in the last 18 months, Pink confessed. With investment volumes at their lowest levels since the global financial crisis, the firm is focusing on positioning the business for the next cycle which, he added, is not too far away. ‘We are behind the peak of value declines which was in Q1 of this year, now the rate of decline is decelerating. Many macro drivers such as inflation and monetary tightening are close to an inflection point. We are not off into the sunset but we are in a very interesting market positioning. We believe the downturn was caused by rising interest rates and it was not a property downturn. Fundamentally there are good real estate tailwinds, and I think there will be opportunities for the business going forward.’

Barings’s Pink said that interest in debt products in particular is looking up, with the firm working on deploying capital raised in a new evergreen floating-rate debt strategy. ‘On the equity side, core markets have been very quiet but value added is coming back strongly and we are positive about prospects of raising capital there. Market conditions haven’t been good for raising capital for the past 18 months but we have some great

evergreen products with dry powder, and as the market begins to stabilise, we fully expect to be deploying capital and capitalize on opportunities in the next 18-24 months.’

The firm currently manages €7 bn of equity and debt with a team of roughly 75 professionals across Europe. Barings continues to focus on industrial/logistics and living, two sectors which benefit from strong structural drivers such as the growth of e-commerce, changes to the supply chain and the lack of affordability in the housing sector, which has been exacerbated by growing interest rates, Pink noted. ‘While these big drivers will stay in place in the near future, these segments will continue to evolve and we will be able to follow this evolution through our local teams.’ He continued: ‘A new focus within the industrial sector could be outdoor storage or light industrial, while in the living space we are looking closely at hotels where we are seeing a recovery in a lot of the key metrics.’