Following Joseph Azelby’s move earlier this year to Apollo Global Management, all eyes are on what the real assets 'guru' is planning in this area at the US private equity giant. Robin Marriott, editor of PropertyEU CapitalWatch, takes stock.
For years, Joseph Azelby has been synonymous with ‘real assets’. As head of JPMorgan Asset Management’s Real Assets Group, he has criss-crossed the world, evangelising how institutional investors need to move their allocation model to having 20% in tangible, income-producing assets, most notably real estate and infrastructure. He created the JPMorgan real assets group, pulled the various groups together, wrote white papers and promoted it with investor clients long before the likes of BlackRock decided to follow suit.
It was a bit of a shock, therefore, to those outside the JPMorgan family when the bank informed clients late last year that Azelby was leaving. The reason seems to be an organisational restructure that is so typical of large financial institutions. Someone higher up decided to roll back the years and return to putting real assets under the alternatives umbrella. This probably did not please Joe Azelby. Indeed, the decision probably meant he had to go.
Because someone won an argument at JPMorgan, it should not be taken as anything like an admission of defeat for those that support or have adopted the real assets movement. Having said that, it does remind one how ‘alternatives’ rather than real assets remain the most common umbrella under which real estate is placed. This approach prevails even within companies that have created a real assets group. A small example of this was shared with me just a few weeks ago. Here in Europe, a very large asset manager created a real assets group several years ago, but other teams still refer to the real estate professionals as being in the alternatives group. Some habits are hard to break.
Where next?
This month I am due to catch up with Mr Azelby to get his take on how successful real assets have been. But his business card will be different. It will say Global Head of Real Assets at Apollo Global Management, the US private equity firm he joined in July this year.
Apollo, as readers will know, is a massively successful player in private equity. Founded in 1990, it continues to be a leading PE firm. It was only in July this year that the company broke the record for the largest private equity fund ever raised – an astonishing $24.6 bn (€20.9 bn). For Azelby to build a business in real assets with that kind of machine on the next desk is perhaps a blessing and a curse. An immense client capital base, but how will they receive the real assets message, and how effective can Apollo be at creating a holistic business anything other than a small part of the existing offer?
Since he started his new job, Azelby has clearly been busy getting his feet under the desk, speaking with stakeholders and clients as he puts into shape a real assets business plan. By now, he will be familiar with members of the real estate team as well as those in the other teams: corporate; private equity; and credit, as well as of course with the senior management, stakeholders and clients.
The betting is that whatever strategy he formulates and however closely it mirrors what JPMorgan has - or had - he will likely be on the road towards the end of the year raising capital for new strategies in the real assets category.
What will be particularly interesting to see is whether he actually enjoys his time at Apollo because this is a very different organisation to what he was used to. Leon Black, Apollo founder, chairman and chief executive officer, is an extremely sharp, wealthy individual schooled in leveraged buyouts. There are plenty of smart, wealthy folk at JPMorgan too, but Black, some of the other senior management, and the history of Apollo is far, far different to JPMorgan.
Impact in Europe
But what has all this to do with European real estate? How will this appointment affect things in the region? In the short run, I don’t think much. Apollo invests in real estate primarily on behalf of a special situations fund, Apollo European Principal Finance Fund (EPF) and my sources say $3 bn has been pulled in so far for EPF III, with the target of $4.5 bn well within reach for a final close in November.
With this new fund in existence, it is easy to see how Apollo can carry on investing. This summer, for instance, Apollo was consumed with work on the Banco Popular property portfolio. Blackstone pipped Apollo to it, becoming preferred bidder on the portfolio of loans valued at €10 bn with a book value of €30 bn, but it shows how Apollo is one of the few players in European real estate that can compete on such large deals. If Apollo had won the process, it would have invested out of its EPF Fund III.
In the short term, Apollo will continue to scout and invest for opportunities. However, in the longer term, there must be some evolution. Azelby is a business builder who can bring a real assets vision to Apollo and its clients. People I have spoken with suggest it might be tough, but that must be the mission and it is bound to usher in new funds and developments that should herald another source of capital scouting Europe’s hard assets for opportunities. We watch this space.
