PropertyEU deputy editor-in-chief Robin Marriott looks at the likely impact of the Aon Townsend takeover on European real estate investment managers.
The private equity real estate fund industry relies on private capital as its life blood. So, anything major that happens among advisory firms to that capital – whether that capital be pension funds, insurance companies, wealth channels, or sovereign wealth funds – is worth taking note of. This month, Aon announced a deal to take over The Townsend Group for $475 mln (€397 mln), and this is one such instance.
Let’s leave aside the reasons why Townsend was for sale in the first place because it’s complicated and not relevant right now. Of greater importance is how the fiduciary advisory industry is morphing. There was a time when you had pure-play advisory firms advising institutional capital on allocation strategy, benchmarking and so on. On the other side, you would have investment management firms – including fund of funds managers – providing a fund through which an investor could gain exposure to a financial asset class, such as real estate.
But for several years now, the trend has been towards pure-play advisory firms also offering investment products or ‘solutions’. Such solutions can be their own managed discretionary funds or other structures such as a joint venture/club or other bespoke vehicle. They can also – and do – advise clients on investing with unrelated third-party fund managers when apt. Intelligent institutional investors have got comfortable with this model of fiduciary advice-meets-investment, it seems.
This column is not about the conflict of interest debate to do with advisors managing funds, however. Instead, it is to suggest the likely impact of an Aon Townsend takeover on European real estate investment managers. Firms such as Townsend, which advises more than 100 institutional investors with real estate or real asset allocations of around $180 bn, can be the difference between having a fund and not having a fund, or at the very least saving a manager up to two years on marketing a fund.
Gramercy fund raise
Take two recent examples. Readers will be aware Gramercy Europe, a firm focussed on European logistics and industrial, announced last September it had raised €260 mln for its third fund and it took just two months – yes, it was fast because it was a ‘one and done’ with Townsend.
Readers will also recall Internos Global Investors announcing raising a bunch of money for its ICE core property vehicle last year – that was Townsend again, on the back of which Internos has momentum to market to further institutional investors. So, firms such as Townsend can be rainmakers for some investment managers.
Townsend is probably the best known and largest firm of its kind when it comes to specialist real estate investment advisory. The Cleveland, Ohio-based company started out as a boutique real estate advisor in 1983 and expanded into real assets in 1999. Its new owner, Aon, meanwhile, is headquartered in London and can be thought of as a global insurance broker with a risk, retirement and health consulting practice. It has been very successful advising clients at the very genesis of their investment journey – advising them on asset allocation, benchmark setting, risk framework and so on. Aon, having looked at the way institutional investors are demanding more exposure to illiquid alternatives – not just real estate – concluded that in order to grow it wanted Townsend.
Impact on European fund managers
So how is it going to work in Europe? Will Aon taking over Townsend affect European fund managers? My sense is yes and no! Fund managers always grumble when Aon or Townsend decline to invest in their fund. That isn’t about to change. They will continue to make a dozen or so manager selections/investments globally each year. However, being successful in the advisory business is about being good in the first place; being nimble, possessing an ‘information arbitrage’, scouting good opportunities, having the necessary infrastructure and so on, all leading to having the power to achieve the best ‘price’ on a deal or fund investment in terms of fees and terms. A combined Aon Townsend will be a more powerful price maker in the European real estate market if the enlargement is managed well.
There won’t be much alteration in terms of the day job, which is continuing to manage existing investments, looking for new investments, and growth from winning new clients – now as an enlarged entity. But what you will see is a serious attempt to serve clients better in alternatives and that means a more powerful player than it already was.
